As with the Applied Materials and the Discover Financial Covered Calls positions established on May 19th, 2020, AIG goes ex-dividend tomorrow so capturing this dividend is included in the potential return-on-investment results detailed below. This is the second AIG Covered Calls position established with a June 19th expiration date. The prior position was established at the $29.00 strike price and was posted here (see link).
The Implied Volatility of these Call options was at 56.5 when this transaction executed and there is no earnings report prior to the June 19th options expiration date; so selling these options provided an attractive options premium income of $2.59 per share and at a time value (aka extrinsic value) of $.4325 per share. Given the Covered Calls Advisor's Bearish overall market outlook, a conservative in-the-money Covered Calls position was established with a Delta (which provides a good approximation of the probability of assignment at expiration) of 75.3%.
As detailed below, a potential return-on-investment result if this position closes in-the-money at the June 19th options expiration date is +2.5% absolute return in 9 days (equivalent to a +103.2% annualized return-on-investment).
American International Group Inc. (AIG) -- New Covered Calls Position #2 in AIG
06/11/2020 Bought 300 shares of American International Group Inc. @ $32.1575 per share
06/11/2020 Sold 3 American International Group June 19th, 2020 $30.00 Call options @ $2.59 per share
Note: the Open Interest in these Call options was 1,044 contracts.
06/12/2020 Ex-dividend date at $.32 per share
A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $8,872.26
= ($32.1575 - $2.59) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$777.00
= ($2.59 * 300 shares)
(b) Dividend Income: +$96.00
= $.32 per share x 300 shares
(c) Capital Appreciation (If American International Group stock is above $30.00 strike price at the June 19th options expiration): -$647.25
= ($30.00 -$32.1575) * 300 shares
Total Net Profit: +$225.75
= (+$777.00 options income +$96.00 dividend income -$647.25 capital appreciation)
Absolute Return: +2.5%
= +$225.75/$8,872.26
Equivalent Annualized Return: +103.2%
= (+$225.75/$8,872.26)*(365/9 days)
These returns will be achieved as long as the stock is above the $30.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $29.2475 ($32.1575 -$2.59 -$.32) provides 9.0% downside breakeven protection below today's purchase price.
