Covered Call Established in FMC Corporation

A Covered Call position was established this morning in FMC Corporation (ticker FMC), with a January 15th, 2021 options expiration date. One hundred shares of FMC were purchased at $113.24 and one Call option was sold at $4.40 per share at the $110.00 strike price.  

The time value was $1.16 per share [$110.00 strike price - ($113.24 share price - $4.40 Call option premium)] when this buy/write limit order transaction was executed. The stock goes ex-dividend at $.48 per share (1.7% annual dividend yield) this Wednesday (12/30/2020) and this is included in the calculations below.

A potential return-on-investment result if this position closes in-the-money at the January 15th options expiration date is +1.5% absolute return in 19 days (equivalent to a +28.9% annualized return-on-investment).   The delta was 69.5 when this position was established, which is the approximate probability that it will close in-the-money on the options expiration date in which case, as detailed below, the maximum potential profit would be achieved.

FMC Corporation (FMC) -- New Covered Call Position
The buy/write transaction was as follows:
12/28/2020 Bought 100 shares of the FMC Corporation @ $113.24 per share 
12/28/2020 Sold 1 FMC Jan 15th, 2021 $110.00 Call option @ $4.40 per share
Note: the Implied Volatility of these Call options was 23.6 when this position was established.
12/30/2020 Ex-dividend of $.48 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $10,884.67
= ($113.24 - $4.40) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$440.00
= ($4.40 * 100 shares)
(b) Dividend Income: +$48.00
= $.48 per share x 100 shares 
(c) Capital Appreciation (If FMC is above $110.00 strike price at the January 15th, 2021 options expiration date): -$324.00
= ($110.00 -$113.24) * 100 shares

Total Net Profit: +$164.00
= (+$440.00 options income +$48.00 dividend income -$324.00 capital appreciation)

Absolute Return: +1.5%
= +$164.00/$10,884.67
Equivalent Annualized Return: +28.9%
= (+$164.00/$10,884.67)*(365/19 days)

These returns will be achieved if the FMC Corporation is above the $110.00 strike price at the market closing on the January 15th, 2021 options expiration date.  If the stock declines below the strike price, the breakeven price of $108.36 ($113.24 -$4.40 -$.48) provides 4.3% downside breakeven protection below today's FMC purchase price.

Please email me at partlow@cox.net if you have any comments or questions related to this post or anything related to Covered Calls investing.

Jeff Partlow