Established Covered Calls Position in Medtronic PLC Using the Dividend Capture Strategy

Today a Covered Calls position was established in Medtronic PLC (ticker symbol MDT) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $103.41 and 2 October 2nd, 2020 Call options were sold at $4.03 at the $100.00 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 76.3 which closely approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there is an upcoming ex-dividend of $.58 per share on September 24th which provides an annual dividend yield of 2.2% at the current stock price of $103.41.  Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the October 2nd options expiration date.

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

•  +0.6% absolute return (equivalent to +75.9% annualized return-on-investment for the next 3 days) if the stock is assigned early (business day prior to the September 24th ex-dividend date); OR 

• +1.2% absolute return (equivalent to +36.7% annualized return over the next 12 days) if the stock is assigned on the October 2nd options expiration date. 
  

Medtronic PLC (MDT) -- New Covered Calls Position
The buy/write transaction was:
09/21/2020 Bought 200 Medtronic PLC shares @ $103.41
09/21/2020 Sold 2 MDT 10/02/2020 $100.00 Call options @ $4.03
Note 1: the Implied Volatility of the Calls was 25.0 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.62 per share = [$4.03 Call options premium - ($103.41 stock price - $100.00 strike price)]
09/24/2020 Upcoming quarterly ex-dividend of $.58 per share

Two possible overall performance results (including commissions) for this Medtronic Covered Calls position are as follows:
Covered Calls Cost Basis: $19,877.34
= ($103.41 - $4.03) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$806.00
= ($4.03 * 200 shares)
(b) Dividend Income (If option exercised early on Sept 23rd, the business day prior to the Sept 24th ex-div date): +$0.00; or
(b) Dividend Income (If Medtronic stock assigned at Oct. 2nd, 2020 expiration): +$116.00
= ($.58 dividend per share x 200 shares)

(c) Capital Appreciation (If Medtronic Call options assigned early on Sept 23rd): -$682.00
+($100.00 - $103.41) * 200 shares; or
(c) Capital Appreciation (If MDT shares assigned at $100.00 strike price at options expiration): -$682.00
+($100.00 - $103.41) * 200 shares

1. Total Net Profit [If option exercised on Sept 23rd (business day prior to Sept 24th ex-dividend date)]: +$124.00

= (+$806.00 options income +$0.00 dividend income -$682.00 capital appreciation); or

2. Total Net Profit (If Medtronic shares assigned at $100.00 strike price at Oct 2nd, 2020 expiration): +$240.00

= (+$806.00 +$116.00 dividend income -$682.00)

1. Absolute Return (If two MDT Call options exercised early on Sept 23rd): +0.6%

= +$124.00/$19,877.34

Annualized Return (If options assigned early): +75.9%

= (+$124.00/$19,877.34)*(365/3 days); or

2. Absolute Return (If Medtronic shares assigned at $100.00 at Oct 2nd, 2020 options expiration): +1.2%

= +$240.00/$19,877.34

Annualized Return (If MDT shares assigned at $100.00 at Oct 2nd, 2020 expiration): +36.7%
= (+$240.00/$19,877.34)*(365/12 days)

Either outcome provides an attractive return-on-investment result for this Medtronic investment.  These returns will be achieved as long as the stock is above the $100.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $98.80 ($103.41 -$4.03 -$.58) provides 4.5% downside protection below today's stock purchase price.

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.  As shown below with this Medtronic position, all nine criteria were met.