Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a $.42 per share ex-dividend on May 29th is prior to the June 19th options expiration date. Importantly to the Covered Calls Advisor's analysis, all ten criteria of the Dividend Capture Strategy (see table at end of this post) are met with this position. The Covered Calls Advisor's current Overall Market Meter outlook remains Bearish meaning that my best estimate is that the stock market will be lower a month from today. If so, the appropriate Covered Calls strategy is to sell in-the-money strike prices. The hope is that even if the stock market declines during the next month, the decline will be a moderate one and the stock price of Tyson Foods will not decline below its $55.00 strike price at closing on the June 19th options expiration date, in which case the maximum potential profit in this Tyson Foods position would be achieved even as the stock market declines.
As detailed below, two potential return-on-investment results are:
- +1.5% absolute return (equivalent to +67.3% annualized return for the next 8 days) if the stock is assigned early (business day prior to the May 29th ex-dividend date); OR
- +2.3% absolute return (equivalent to +27.4% annualized return over the next 30 days) if the stock is assigned on the June 19th options expiration date.
Tyson Foods Inc. (TSN) -- New Covered Calls Position
The transactions are:
05/21/2020 Sold 2 Tyson Foods 6/19/2020 $55.00 Call options @ $5.04
Note: a simultaneous buy/write transaction was executed.
05/29/2020 Upcoming quarterly ex-dividend of $.42 per share
Two possible overall performance results (including commissions) for this Tyson Foods Covered Calls position are as follows:
Covered Calls Cost Basis: $10,841.34
= ($59.24 - $5.04) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,008.00
= ($5.04 * 200 shares)
(b) Dividend Income (If option exercised early on May 28th, the business day prior to the May 29th ex-div date): +$0.00; or
(b) Dividend Income (If Tyson Foods stock assigned at June 19th, 2020 options expiration): +$84.00
= ($.42 dividend per share x 200 shares)
(c) Capital Appreciation (If Tyson Foods Call options assigned early on May 28th): -$848.00
+($55.00 - $59.24) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $55.00 strike price at options expiration): -$848.00
+($55.00 - $59.24) * 200 shares
+($55.00 - $59.24) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $55.00 strike price at options expiration): -$848.00
+($55.00 - $59.24) * 200 shares
1. Total Net Profit [If option exercised on May 28th (business day prior to the May 29th ex-dividend date)]: +$160.00
= (+$1,008.00 options income +$0.00 dividend income -$848.00 capital appreciation); or
2. Total Net Profit (If Tyson Foods shares assigned at $55.00 at June 19th, 2020 expiration): +$244.00
= (+$1,008.00 +$84.00 -$848.00)
1. Absolute Return [If option exercised on May 28th (business day prior to ex-dividend date)]: +1.5%
= +$160.00/$10,841.34
Annualized Return (If option exercised early): +67.3%
= (+$160.00/$10,841.34)*(365/8 days); or
2. Absolute Return (If Tyson Foods shares assigned at $55.00 at June 19th, 2020 options expiration): +2.3%
= +$244.00/$10,841.34
Annualized Return (If Tyson Foods shares assigned at $55.00 at June 19th, 2020 expiration): +27.4%
= (+$244.00/$10,841.34)*(365/30 days)
Either outcome provides a very satisfactory return-on-investment result for this Tyson Foods investment. These returns will be achieved as long as the stock is above the $55.00 strike price at assignment. However, if the stock declines below the strike price, the breakeven price of $53.78 ($59.24 -$5.04 -$.42) provides 9.2% 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 Tyson Foods position, all ten criteria are met.
