There is an ex-dividend date tomorrow (9/09) of $.85 per share (2.9% annual dividend yield), so capturing this dividend is included in the potential return-on-investment results detailed below. The time value obtained when this position was established was $1.12 per share [$4.35 Call option premium - ($113.23 stock price - $110.00 strike price)].
As detailed below, a potential return-on-investment result if this position closes in-the-money at the September 18th options expiration date is +1.8% absolute return in 11 days (equivalent to a +60.0% annualized return-on-investment).
The buy/write transactions was as follows:
09/08/2020 Bought 100 shares of Travelers @ $113.23 per share
09/08/2020 Sold 1 Travelers Sept 18th, 2020 $110.00 Call option @ $4.35 per share
09/09/2020 Ex-dividend at $.85 per share
A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $10,888.67
= ($113.23 - $4.35) * 100 shares + $.67 commission
Net Profit Components:
(a) Options Income: +$435.00
= ($4.35 * 100 shares)
(b) Dividend Income: +$85.00
= $.85 per share x 100 shares
(c) Capital Appreciation (If Travelers stock is above $110.00 strike price at the Sept 18th options expiration date): -$323.00
= ($110.00 -$113.23) * 100 shares
Total Net Profit: +$197.00
= (+$435.00 options income +$85.00 dividend income -$323.00 capital appreciation)
Absolute Return: +1.8%
= +$197.00/$10,888.67
Equivalent Annualized Return: +60.0%
= (+$197.00/$10,888.67)*(365/11 days)
These returns will be achieved if the stock is above the $110.00 strike price at the market closing on the September 18th, 2020 options expiration date. If the stock declines below the strike price, the breakeven price of $108.03 ($113.23 -$4.35 -$.85) provides 4.6% downside breakeven protection below today's stock purchase price.
Email me at partlow@cox.net if you have any questions related to this post or to anything else related to Covered Calls investing.
Jeff Partlow
