Two hundred Anthem Inc. shares were purchased at $268.93 and two $260.00 Sept 18th, 2020 Call options were sold at $12.93, a net debit of $256.00 per share. Four hundred Bank of America shares were purchased at $25.66 and four $24.50 September 11th, 2020 Call options were sold at $1.35, a net debit of $24.31 per share.
As detailed below, some potential return-on-investment results are:
- Anthem Inc.: (a) +1.6% absolute return in 14 days (equivalent to a +40.7% annualized return-on-investment) if assigned on the day prior to the 9/9/2020 ex-dividend date; OR (b) +1.9% absolute return in 24 days (equivalent to a +29.4% annualized return-on-investment) if assigned on the day prior to the 9/9/2020 ex-dividend date.
- Bank of America Corp.: (a) +0.8% absolute return in 8 days (equivalent to a +40.7% annualized return-on-investment) if assigned on the day prior to the 9/3/2020 ex-dividend date; OR (b) +1.5% absolute return in 17 days (equivalent to a +32.7% annualized return-on-investment) if assigned on the day prior to the 9/3/2020 ex-dividend date.
1. Anthem Inc. (ANTM) -- New Covered Calls Position
08/26/2020 Bought 200 shares of Anthem stock @ $268.93 per share
08/26/2020 Sold 2 ANTM Sept 18th, 2020 $260.00 Call options @ $12.93 per share
Note: The Open Interest in these Calls was 177 contracts and their Implied Volatility was 28.6
09/09/2020 Ex-dividend of $.95 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $51,201.34
= ($268.93 - $12.93) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$2,586.00
= ($12.93 * 200 shares)
(b) Dividend Income (If ANTM shares assigned on 9/08/2020, the business day prior to the ex-dividend date): = +$0.00; or
(b) Dividend Income (If shares assigned at 9/18/2020 options expiration): +$190.00
= $.95 per share x 200 shares
(c) Capital Appreciation (If ANTM shares assigned on 9/8/2020): -$1,786.00
= ($260.00 -$268.93) * 200 shares; or
(c) Capital Appreciation (If shares above $260.00 strike price at Sept 18th options expiration): -$1,786.00
= ($260.00 -$268.93) * 200 shares
1. Potential Net Profit (If Anthem shares assigned early on 9/8/2020, the day prior to the Sept 9th ex-dividend date): +$800.00
= (+$2,586.00 options income +$0.00 dividend income -$1,786.00 capital appreciation)
2. Potential Net Profit (If Anthem price is above $260.00 strike price at Sept 18th options expiration): +$990.00
= (+$2,586.00 options income +$190.00 dividend income - $1,786.00 capital appreciation)
1. Absolute Return (If Anthem Calls exercised early on 9/8/2020, the day prior to the Sept 9th ex-dividend date): +1.6%
= +$800.00/$51,201.34
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +40.7%
= (+$800.00/$51,201.34)*(365/14 days)
2. Absolute Return (If Anthem price is above $260.00 strike price at Sept 18th options expiration): +1.9%
= +$990.00/$51,201.34
Equivalent Annualized Return (If assigned on 9/18/2020 options expiration date): +29.4%
= (+$990.00/$51,201.34)*(365/24 days)
2. Bank of America Corp. (BAC) -- New Covered Calls Position
08/26/2020 Bought 400 shares of Bank of America Corp. stock @ $25.66 per share
08/26/2020 Sold 4 BAC Sept 11th, 2020 $24.50 Call options @ $1.35 per share
Note: The Open Interest in these Calls was 241 contracts and the Implied Volatility was 27.7
09/03/2020 Ex-dividend of $.18 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $9,726.68
= ($25.66 - $1.35) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$540.00
= ($1.35 * 400 shares)
(b) Dividend Income (If BAC shares assigned on 9/02/2020, the business day prior to the ex-dividend date): = +$0.00; or
(b) Dividend Income (If shares assigned at 9/11/2020 options expiration): +$72.00
= $.18 per share x 400 shares
(c) Capital Appreciation (If BAC shares assigned on 9/2/2020): -$464.00
= ($24.50 -$25.66) * 400 shares; or
(c) Capital Appreciation (If shares above $24.50 strike price at Sept 11th options expiration): -$464.00
= ($24.50 -$25.66) * 400 shares
1. Potential Net Profit (If Bank of America shares assigned on 9/2/2020, the day prior to the Sept 3rd ex-dividend date): +$76.00
= (+$540.00 options income +$0.00 dividend income - $464.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $24.50 strike price at Sept 11th options expiration): +$148.00
= (+$540.00 options income +$72.00 dividend income - $464.00 capital appreciation)
1. Absolute Return (If BAC shares assigned on 9/2/2020, the day prior to the Sept 9th ex-dividend date): +0.8%
= +$76.00/$9,726.68
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +35.6%
= (+$76.00/$9,726.68)*(365/8 days)
2. Absolute Return (If BAC price is above $24.50 strike price at Sept 11th options expiration): +1.5%
= +$148.00/$9,726.68
Equivalent Annualized Return (If assigned on 9/11/2020 options expiration date): +32.7%
= (+$148.00/$9,726.68)*(365/17 days)
