Today, a Covered Calls position was established in Pfizer Inc. (PFE) when the Covered Calls Advisor's buy/write limit orders was executed. Three hundred shares were purchased at $36.46 and three February 19th, 2021 Call options were sold at $1.91 at the $35.00 strike price. Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established. The Delta was 69.5 and this approximates a probability of 69.5% that the Call options will be in-the-money on the options expiration date. Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since this January 28th, 2021 ex-dividend is prior to the February 19th options expiration date. There is an intervening quarterly earnings report on February 2nd, 2021 so the Covered Calls Advisor will track this position regularly to determine whether or not it should be closed out prior to the earnings report.
As detailed below, two potential return-on-investment results for this Covered Calls position is:
- Pfizer Inc.: +1.3% absolute return (equivalent to +36.6% annualized return-on-investment for the next 13 days) if the stock is assigned early (business day prior to the January 28th ex-dividend date); OR (2) +2.4% absolute return (equivalent to +24.6% annualized return over the next 36 days) if the stock is assigned on the February 19th options expiration date.
The buy/write transaction was:
01/15/2021 Bought 300 Pfizer shares @ $36.46
01/15/2021 Sold 3 Pfizer 02/19/2021 $35.00 Call options @ $1.91 Note: the Time Value (aka Extrinsic Value) in the Call options was $.45 per share = [$1.91 Call options premium - ($36.46 stock price - $35.00 strike price)]
01/28/2021 Upcoming quarterly ex-dividend of $.39 per share
Two possible overall performance results (including commissions) for this Pfizer Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $10,367.01
= ($36.46 - $1.91) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$573.00
= ($1.91 * 300 shares)
(b) Dividend Income (If options exercised early on Jan. 27th, 2021 -- the business day prior to the Jan. 28th ex-div date): +$0.00; or
(b) Dividend Income (If Pfizer stock assigned at Feb. 19th, 2021 expiration): +$117.00
= ($.39 dividend per share x 300 shares)
+($35.00 - $36.46) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $35.00 strike price at options expiration): -$438.00
+($35.00 - $36.46) * 300 shares
Either outcome provides a satisfactory return-on-investment result for this Pfizer investment. These returns will be achieved as long as the stock is above the $35.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $34.16 ($36.46 -$1.91 -$.39) provides 6.3% 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 Pfizer position, eight of the nine criteria were 'YES'.
