Established Covered Calls Position in Taiwan Semiconductor Manufacturing Co. Ltd.

Today a Covered Calls position was established in Taiwan Semiconductor Manufacturing Co. Ltd. (ticker symbol TSM) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $54.96 and three June 26th, 2020 Call options were sold at $2.46 at the $53.00 strike price.  Taiwan Semiconductor is the largest semiconductor company in the world by market cap, currently slightly higher than Intel Corp.

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a semi-annual $.4205 per share ex-dividend on June 18th is prior to the June 26th options expiration date.  The Covered Calls Advisor's current Overall Market Meter outlook remains Bearish, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.  Even if the stock market declines during the next 19 days, hopefully the decline will be a moderate one and the stock price of Taiwan Semiconductor will not decline below its $53.00 strike price at closing on the June 26th options expiration date, in which case the maximum potential profit in this Taiwan Semiconductor position would be achieved.  Importantly, the next quarterly earnings report on July 16th is after the June 26th options expiration date.  

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

•  +1.0% absolute return (equivalent to +34.8% annualized return for the next 10 days) if the stock is assigned early (business day prior to the June 18th ex-dividend date); OR 

• +1.7% absolute return (equivalent to +33.7% annualized return over the next 19 days) if the stock is assigned on the June 26th options expiration date.

Taiwan Semiconductor Manufacturing Co. Ltd.(AIG) -- New Covered Calls Position
The transactions are:

06/08/2020 Bought 300 Taiwan Semiconductor shares @ $54.96
06/08/2020 Sold 3 TSM 6/26/2020 $53.00 Call options @ $2.46
Note: a simultaneous buy/write transaction was executed.  The Implied Volatility was 24.7 when this position was transacted.
06/18/2020 Upcoming quarterly ex-dividend of $.4205 per share

Two possible overall performance results (including commissions) for this Taiwan Semiconductor Covered Calls position are as follows:
Covered Calls Cost Basis: $15,752.02
= ($54.96 - $2.46) * 300 shares + $2.02 commission

Net Profit Components:
(a) Options Income: +$738.00
= ($2.46 * 300 shares)
(b) Dividend Income (If option exercised early on June 17th, the business day prior to the June 18th ex-div date): +$0.00; or
(b) Dividend Income (If TSM stock assigned at June 26th, 2020 options expiration): +$126.15
= ($.4205 dividend per share x 300 shares)

(c) Capital Appreciation (If TSM Call options assigned early on June 17th): -$588.00
+($53.00 - $54.96) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $53.00 strike price at options expiration): -$588.00
+($53.00 - $54.96) * 300 shares

1. Total Net Profit [If option exercised on June 17th (business day prior to the June 18th ex-dividend date)]: +$150.00

= (+$738.00 options income +$0.00 dividend income -$588.00 capital appreciation); or

2. Total Net Profit (If TSM shares assigned at $53.00 at June 26th, 2020 expiration): +$276.15

= (+$738.00 +$126.15 -$588.00)

1. Absolute Return [If option exercised on June 17th (business day prior to ex-dividend date)]: +1.0%

= +$150.00/$15,752.02

Annualized Return (If option exercised early): +34.8%

= (+$150.00/$15,752.02)*(365/10 days); or

2. Absolute Return (If TSM shares assigned at $53.00 at June 26th, 2020 options expiration): +1.8%

= +$275.13/$15,752.02

Annualized Return (If TSM shares assigned at $53.00 at June 19th, 2020 expiration): +33.7%

= (+$276.15/$15,752.02)*(365/19 days)

Either outcome provides an attractive annualized return-on-investment result for this Taiwan Semiconductor investment.  These returns will be achieved as long as the stock is above the $53.00 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $52.0795 ($54.96 -$2.46 -$.4205) provides 5.2% downside protection below today's stock purchase price.

There is a 71.6% probability that the Calls will be above the $53.00 strike price at options expiration and thus the maximum potential profit would be achieved.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position and as shown below, eight criteria are met with this position.
Note: there has 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 TSM position, the Equivalent Annualized Dividend Yield of 16.1% [calculated as ($.4205/$53.00) x (365/18 days)] exceeds the minimum 6.0% criteria in this case.