There is an upcoming ex-dividend of $.45 per share (a 4.2% annualized dividend yield) on November 12th. Two potential return-on-investment results for this position are detailed below (including the possibility of early exercise since the ex-dividend is prior to the November 20th options expiration date). Given the Covered Calls Advisor's current Overall Market Meter outlook, a conservative in-the-money Covered Calls position was established -- the Delta was 74.4, which approximates the probability that the Call options will be in-the-money on the options expiration date. Per the Covered Calls Advisor's preference, there is no earnings report prior to the Nov. 20th options expiration date.
As detailed below, two potential return-on-investment results are:
- +1.3% absolute return (equivalent to +60.1% annualized return for the next 8 days) if the stock is assigned early (business day prior to the November 12th ex-dividend date); OR
- +2.5% absolute return (equivalent to +52.7% annualized return over the next 17 days) if the stock is assigned on the November 20th options expiration date.
Truist Financial Corporation (TFC) -- New Covered Calls Position
The buy/write transaction was:
11/04/2020 Sold 2 TFC 11/20/2020 $40.00 Call options @ $2.96
Note: the Time Value (aka Extrinsic Value) in the Call options was $.52 per share = [$2.96 Call options premium - ($42.44 stock price - $40.00 strike price)]
11/12/2020 Upcoming quarterly ex-dividend of $.45 per share
Two possible overall performance results (including commissions) for this Truist Financial Covered Calls position are as follows:
Covered Calls Cost Basis: $7,897.34
= ($42.44 - $2.96) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$592.00
= ($2.96 * 200 shares)
(b) Dividend Income (If option exercised early on Nov 11th, the business day prior to the Nov 12th ex-div date): +$0.00; or
(b) Dividend Income (If Truist Financial stock assigned at Nov 20th, 2020 expiration): +$90.00
= ($.45 dividend per share x 200 shares)
(c) Capital Appreciation (If TFC Call options assigned early on Nov 20th): -$488.00
+($40.00 - $42.44) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $40.00 strike price at options expiration): -$488.00
+($40.00 - $42.44) * 200 shares
+($40.00 - $42.44) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $40.00 strike price at options expiration): -$488.00
+($40.00 - $42.44) * 200 shares
1. Total Net Profit [If option exercised on Nov 11th (business day prior to Nov 12th ex-dividend date)]: +$104.00
= (+$592.00 options income +$0.00 dividend income -$488.00 capital appreciation); or
2. Total Net Profit (If Truist shares assigned at $40.00 strike price at November 20th, 2020 expiration): +$194.00
= (+$104.00 +$90.00 -$488.00)
1. Absolute Return (If option exercised early on Nov 11th): +1.3%
= +$104.00/$7,897.34
Annualized Return (If option exercised early): +60.1%
= (+$104.00/$7,897.34) * (365/8 days); or
2. Absolute Return (If Truist shares assigned at $40.00 at Nov 20th, 2020 options expiration): +2.5%
= +$194.00/$7,897.34
Annualized Return (If TFC shares assigned at $48.00 at Aug 7th, 2020 expiration): +52.7%
= (+$194.00/$7,897.34)*(365/17 days)
Either outcome provides an attractive return-on-investment result for this Truist Financial investment. These returns will be achieved as long as the stock is above the $40.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $39.03 ($42.44 -$2.96 -$.45) provides 8.0% 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 Truist Financial position, eight of nine criteria were met.
