Established Covered Calls Position in Oracle Corp. Using the Dividend Capture Strategy

Today a Covered Calls position was established in Oracle Corp. (ticker symbol ORCL) with an April 17th, 2020 expiration and at the $45.00 strike price.  This position has an upcoming quarterly ex-dividend on April 8th of $.24 per share, so two potential returns-on-investment for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the April 17th options expiration date.  The next Oracle earnings report occurs in June (after the April 17th options expiration date). Given the Covered Calls Advisor's current Overall Market Meter outlook of Slightly Bearish, an in-the-money (7.2% downside protection to the strike price) Covered Calls position was established. 


As detailed below, two potential return-on-investment results are: 

•  +2.0% absolute return (equivalent to +93.0% annualized return for the next 8 days) if the stock is assigned early (business day prior to the April 8th ex-dividend date); OR 

• +2.6% absolute return (equivalent to +52.4% annualized return over the next 18 days) if the stock is assigned on the April 17th options expiration date.

Oracle Corp. (ORCL) -- New Covered Calls Position
The transaction was:
03/31/2020 Bought 200 Oracle shares @ $48.72
Note: this stock price was down 3.3% from yesterday's closing price (and the Dow was down about 200 points) this afternoon when this transaction executed.
03/31/2020 Sold 2 Oracle 4/17/2020 $45.00 Call options @ $4.62
Note: a simultaneous buy/write transaction was executed and the options Implied Volatility was 55.
04/08/2020 Upcoming quarterly ex-dividend of $.24 per share

Two possible overall performance results (including commissions) for this Oracle Covered Calls position are as follows:
Covered Calls Cost Basis: $8,826.29
= ($48.72 - $4.62) *200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$924.00
= ($4.62 * 200 shares)
(b) Dividend Income (If option exercised early on Apr 7th, the business day prior to Apr 8th ex-div date): +$0.00; or
(b) Dividend Income (If Oracle stock assigned at Apr 17th, 2020 expiration): +$48.00
= ($.24 dividend per share x 200 shares)

(c) Capital Appreciation (If Oracle assigned early on April 7th): -$744.00
+($45.00 - $48.72) *200 shares; or
(c) Capital Appreciation (If shares assigned at $45.00 strike price at options expiration): -$744.00
+($45.00 - $48.72) * 200 shares

1. Total Net Profit [If option exercised on April 7th (business day prior to April 8th ex-dividend date)]: +$180.00

= (+$924.00 options income +$0.00 dividend income -$744.00 capital appreciation); or

2. Total Net Profit (If Oracle shares assigned at $45.00 at Apr 17th, 2020 expiration): +$228.00

= (+$924.00 +$48.00 -$744.00)

1. Absolute Return [If option exercised on Apr 7th (business day prior to ex-dividend date)]: +2.0%

= +$180.00/$8,826.29

Annualized Return (If option exercised early): +93.0%

= (+$180.00/$8,826.29)*(365/8 days); or

2. Absolute Return (If Oracle shares assigned at $45.00 at Apr 17th, 2020 options expiration): +2.6%

= +$228.00/$8,826.29

Annualized Return (If Oracle shares assigned at $45.00 at Apr 17th, 2020 expiration): +52.4%

= (+$228.00/$8,826.29)*(365/18 days)

Either outcome provides a very attractive return-on-investment result for this Oracle Corp. investment.  These returns will be achieved as long as the stock is above the $45.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $43.86 ($48.72 -$4.62 -$.24) provides a substantial 10.0% downside protection below today's stock purchase price.

At least eight of the ten metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Oracle position, all ten criteria are met in this case.