Established Covered Calls Position in JPMorgan Chase & Co.

Today a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $95.81 and two July 17th, 2020 $90.00 Call options were sold at $7.45.  This is a conservative in-the-money position since it is 6.5% above the $90.00 strike price. 

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly $.90 per share ex-dividend on July 2nd is prior to the July 17th options expiration date.   Even if the stock market declines during the next 24 days until options expiration, if the stock price remains above the $90.00 strike price at assignment, then the maximum potential profit for this JPMorgan Covered Calls position would be achieved.

An additional consideration in this position is that the next quarterly earnings report is on July 14th which is prior to the July 17th options expiration date.  Prior to the earnings report, the Covered Calls Advisor will be monitoring this position closely every day since closing out the position after the ex-dividend date but prior to the earnings date is a likely possibility.
  
As detailed below, two potential return-on-investment results are: 

•  +1.9% absolute return (equivalent to +84.7% annualized return for the next 8 days) if the stock is assigned early (business day prior to the July 2nd ex-dividend date); OR 

• +2.95 absolute return (equivalent to +43.7% annualized return over the next 24 days) if the stock is assigned on the July 17th options expiration date.

JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

Although unlikely, if the current time value (i.e. extrinsic value) of $1.64 [$7.45 option premium - ($95.81 stock price - $90.00 strike price)] remaining in the short call options decays substantially (down to about $.20 or less) by July 1st (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be the most desired outcome since its +84.7% annualized return-on-investment (aroi) would substantially exceed the +43.7% aroi if assigned on the 7/17/2020 options expiration date.

The buy/write transaction was:
06/24/2020 Bought 200 JPM shares @ $95.81
06/24/2019 Sold 2 JPM 7/17/2020 $90.00 Call options @ $7.45
07/02/2020 Upcoming quarterly ex-dividend of $.90 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $17,673.34
= ($95.81 - $7.45) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,490.00
= ($7.45 *200 shares)
(b) Dividend Income (If option exercised early on July 1st, the business day prior to July 2nd ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at July 17th, 2020 expiration): +$180.00
= ($.90 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$1,162.00
+($90.00 -$95.81)*200 shares; or
(c) Capital Appreciation (If JPM assigned at $90.00 strike price at expiration): -$1,162.00
+($90.00-$95.81) * 200 shares

1. Total Net Profit [If option exercised on July 1st (business day prior to July 2nd ex-dividend date)]: +$328.00

= (+$1,490.00 options income +$0.00 dividend income -$1,162.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $90.00 at July 17th, 2020 expiration): +$508.00

= (+$1,490.00 options income +$180.00 dividend income -$1,162.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +1.9%

= +$328.00/$17,673.34

Annualized Return (If option exercised early): +84.7%

= (+$328.00/$17,673.34)*(365/8 days); or

2. Absolute Return (If JPM assigned at $90.00 at July 17th, 2020 expiration): +2.9%

= +$508.00/$17,673.34

Annualized Return (If JPM assigned at $90.00 at July, 17th 2020 expiration): +43.7%

= (+$508.00/$17,673.34)*(365/24 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $90.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $87.46 ($95.81 -$7.45 -$.90) provides 8.7% downside protection below today's purchase price.

There is a 72.4% probability that the Calls will be above the $90.00 strike price at options expiration.  If so, the +43.7%  annualized roi profit detailed above would be achieved.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  Eight of the nine criteria are achieved in this case.
Note: there has recently been a modification to Criteria #3 below.  Previously, the "Annual Dividend Yield (at the Strike Price) metric was > 1.5%.  This criteria is now adjusted relative to the total days until expiration, so it now reads the "Equivalent Annualized Dividend Yield (at the strike price) exceeds 6.0%."  For this JPM position, the Equivalent Annualized Dividend Yield of 15.2% [calculated as ($.90/$90.00) x (365/24 days)] provides a very attractive yield for this Covered Calls position that is well above the minimum 6.0% threshold.