Established Covered Calls Positions in Cisco Systems Inc. and JPMorgan Chase & Co.

This afternoon, Covered Calls positions were established in Cisco Systems Inc. (ticker symbol CSCO) and JPMorgan Chase & Co. (JPM) when the Covered Calls Advisor's buy/write limit orders were executed. For Cisco Systems, 400 shares were purchased at $44.46 and 4 January 15th, 2021 Call options were sold at $1.17 at the $43.50 strike price.   For JPMorgan Chase & Co., 200 shares were purchased at $125.22 and 2 January 15th, 2021 Call options were sold at $5.78 at the $120.00 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies.  Delta was 72.5 for the Cisco Covered Calls position and 80.1 for the JPMorgan position -- this approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there are upcoming ex-dividends of $.36 per share for Cisco on January 4th, 2021 and $.90 for JPMorgan on January 5th, 2021.

Potential results for these Covered Calls positions, as detailed below, includes the possibility of early assignment since these ex-dividends are prior to the January 15th options expiration date, although early assignment is unlikely since (because the market is closed on the January 1st New Year's Day holiday) there is only one market trading day prior to the Cisco ex-dividend and two prior to the JPM ex-dividend date.  There is not a quarterly earnings report prior to the Jan. 15th options expiration date for Cisco, but there is a quarterly earnings report before market open on Jan. 15th for JPMorgan -- so this JPM Covered Calls position will most likely be closed out prior to the options expiration date.

As detailed below, two potential return-on-investment results for each of these Covered Calls positions are: 

• For Cisco Systems Inc.: +0.5% absolute return (equivalent to +35.3% annualized return-on-investment for the next 5 days) if the stock is assigned early (last trading day prior to the January 4th ex-dividend date); OR (2) +1.3% absolute return (equivalent to +28.3% annualized return over the next 17 days) if the stock is assigned on the January 15th options expiration date.

• For JPMorgan Chase & Co.: +0.5% absolute return (equivalent to +28.5% annualized return-on-investment for the next 6 days) if the stock is assigned early (last trading day prior to the January 5th ex-dividend date); OR (2) +1.2% absolute return (equivalent to +26.2% annualized return over the next 17 days) if the stock is assigned on the January 15th options expiration date.

1.  Cisco Systems Inc. (CSCO) -- New Covered Calls Position

The buy/write transaction was:
12/30/2020 Bought 400 Cisco shares @ $44.46
12/30/2020 Sold 4 Cisco 01/15/2021 $43.50 Call options @ $1.17
Note: the Time Value (aka Extrinsic Value) in the Call options was $.21 per share = [$1.17 Call options premium - ($44.46 stock price - $43.50 strike price)]
01/04/2021 Upcoming quarterly ex-dividend of $.36 per share

Two possible overall performance results (including commissions) for this Cisco Covered Calls position are as follows:
Covered Calls Cost Basis: $17,318.68
= ($44.46 - $1.17) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$468.00
= ($1.17 * 400 shares)
(b) Dividend Income (If option exercised early on Dec. 31st, 2020, the last business day prior to the Jan. 4th, 2021 ex-div date): +$0.00; or
(b) Dividend Income (If Cisco stock assigned at January 15th, 2021 expiration): +$144.00
= ($.36 dividend per share x 400 shares)

(c) Capital Appreciation (If CSCO Call options assigned early on Dec. 31st, 2020): -$384.00
+($43.50 - $44.46) * 400 shares; or
(c) Capital Appreciation (If CSCO shares assigned at $43.50 strike price at options expiration): -$384.00
+($43.50 - $44.46) * 400 shares

1. Total Net Profit [If option exercised on Dec. 31st, 2020 (last business day prior to Jan 4th ex-dividend date)]: +$84.00

= (+$468.00 options income +$0.00 dividend income -$384.00 capital appreciation); or

2. Total Net Profit (If Cisco shares assigned at $43.50 strike price at January 15th, 2021 expiration): +$228.00

= (+$468.00 +$144.00 -$384.00)

1. Absolute Return (If four Cisco Call options exercised early on Dec. 31st): +0.5%

= +$84.00/$17,318.68

Annualized Return (If option exercised early): +35.3%

= (+$84.00/$17,318.68)*(365/5 days); or

2. Absolute Return (If Cisco shares assigned at $43.50 at Jan. 15th, 2021 options expiration): +1.3%

= +$228.00/$17,318.68

Annualized Return (If Cisco shares assigned at $43.50 at 1/15/21 expiration): +28.3%

= (+$228.00/$17,318.68)*(365/17 days)

Either outcome provides a satisfactory return-on-investment result for this Cisco Systems investment.  These returns will be achieved as long as the stock is above the $43.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $42.93 ($44.46 -$1.17 -$.36) provides 3.4% 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 Cisco Systems position, all nine criteria were met.

2.  JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

The buy/write transaction was:
12/30/2020 Bought 200 JPM shares @ $125.22
12/30/2020 Sold 2 JPM 01/15/2021 $120.00 Call options @ $5.78
01/05/2021 Upcoming quarterly ex-dividend of $.90 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $23,889.34
= ($125.22 - $5.78) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,156.00
= ($5.78 *200 shares)
(b) Dividend Income (If option exercised early on January 4th, 2021 the business day prior to the Jan. 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at January 15th, 2021 expiration): +$180.00
= ($.90 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$1,044.00
+($120.00 -$125.22)*200 shares; or
(c) Capital Appreciation (If JPM assigned at $120.00 strike price at expiration): -$1,044.00
+($120.00-$125.22) * 200 shares

1. Total Net Profit [If option exercised on January 4th (business day prior to Jan. 5th, 2021 ex-dividend date)]: +$112.00

= (+$1,156.00 options income +$0.00 dividend income -$1,044.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $120.00 at Jan. 15th, 2021 expiration): +$292.00

= (+$1,156.00 options income +$180.00 dividend income -$1,044.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +0.5%

= +$112.00/$23,889.34

Annualized Return (If option exercised early): +28.5%

= (+$112.00/$23,889.34)*(365/6 days); or

2. Absolute Return (If JPM assigned at $120.00 at the Jan. 15th, 2021 expiration): +1.2%

= +$292.00/$23,889.34

Annualized Return (If JPM assigned at $120.00 at the Jan. 15th, 2021 expiration): +26.2%

= (+$292.00/$23,889.34)*(365/17 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $120.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $118.54 ($125.22 -$5.78 -$.90) provides 5.3% downside protection below today's purchase price.

There is a 80.1% probability that the Calls will be above the $120.00 strike price at options expiration.  If so, the +26.2%  annualized roi profit detailed above would be achieved.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, in this case only seven of the nine criteria are achieved, but the Covered Calls Advisor still decided to enter this position.