Covered Calls Established in Lowe's Companies Inc.

Today, a Covered Calls position was established in Lowe's Companies Inc. (ticker symbol LOW) with an August 16th, 2019 expiration and at the $100.00 strike price.  This position has an upcoming quarterly ex-dividend on July 23rd of $.55 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the August 16th, 2019 options expiration date.  It is also noted that quarterly earnings will be reported after the options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +0.8% absolute return (equivalent to +58.5% annualized return for the next 5 days) if the stock is assigned early (last trading day prior to July 23rd ex-date); OR +1.4% absolute return (equivalent to +16.5% annualized return over the next 30 days) if the stock is assigned on the August 16th options expiration date.


Lowe's Companies Inc. (LOW) -- New Covered Calls Position

Although unlikely, if the current time value (i.e. extrinsic value) of $.82 = [$4.31 options premium - ($103.49 stock price - $100.00 strike price)] remaining in the two short Call options decays substantially (down to about $.15 or less) by July 22nd (the last trading day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Bristol-Myers shares away to capture the dividend payment.

The buy/write transaction was:
07/18/2019 Bought 200 Lowe's Companies Inc. shares @ $103.49
07/18/2019 Sold 2 Lowe's 8/16/2019 $100.00 Call options @ $4.31
Note: the Open Interest in these Call options was 409 contracts and the Implied Volatility was 21.9 when this transaction was executed.
07/23/2019 Upcoming quarterly ex-dividend of $.55 per share

Two possible overall performance results (including commissions) for this Lowe's Companies Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $19,842.29
= ($103.49 - $4.31) * 200 shares + $6.29 commissions

Net Profit Components:
(a) Options Income: +$862.00
= ($4.31 *200 shares)
(b) Dividend Income (If option exercised early on July 22nd, the business day prior to July 23rd ex-div date): +$0.00; or
(b) Dividend Income (If Lowe's shares assigned at August 16th, 2019 expiration): +$110.00
= ($.55 dividend per share x 200 shares)

(c) Capital Appreciation (If LOW shares assigned early on July 22nd): -$702.95
+($100.00 -$103.49)* 200 shares - $4.95 commissions; or
(c) Capital Appreciation (If Lowe's shares assigned at $44.00 strike price at options expiration): -$702.95
+($100.00 -$103.49)* 200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on July 22nd (business day prior to July 23rd ex-dividend date)]: +$159.05

= (+$862.00 options income +$0.00 dividend income -$702.95 capital appreciation); or

2. Total Net Profit (If Lowe's shares assigned at $100.00 at August 16, 2019 expiration): +$269.05

= (+$862.00 options income +$110.00 dividend income -$702.95 capital appreciation)

1. Absolute Return (If Lowe's option exercised early): +0.8%

= +$159.05/$19,842.29

Annualized Return: +58.5%

= (+$159.05/$19,842.29)*(365/5 days); or

2. Absolute Return (If Lowe's shares assigned at $100.00 at August 16th, 2019 expiration): +1.4%

= +$269.05/$19,842.29

Annualized Return: +16.5%

= (+$269.05/$19,842.29)*(365/30 days)

These returns will be achieved as long as the stock is above the $100.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $98.63 ($103.49 -$4.31 -$.55) provides 4.7% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential Covered Calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, ten of the eleven criteria are achieved for this Lowe's Companies Inc. Covered Calls position.  The one criteria not achieved is the 16.5% annualized roi being below the desired 20.0% minimum threshold.  Historically, the Covered Calls Advisor's minimum threshold for potential annualized roi is 20.0%, however with the current Volatility Index (VIX) well below its historic average, this objective is being (hopefully temporarily) reduced to 15.0%.