Most mid-to-large-cap companies in the Financial Sector provide only modest growth prospects, but they often pay 2.0%+ annual dividend yields. Consequently, the Covered Calls Advisor is targeting opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions established in upcoming months. This new February Bank of America Covered Calls position continues the Dividend Capture Strategy of often selling
in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration
month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).
The goal of these monthly Covered Calls in these banks is to both capture the quarterly dividend payment and for the stock prices to remain above the strike price at
options expiration, thereby achieving the maximum possible return-on-investment result for the position. So far, this approach has provided attractive annualized return results -- much better than would be achieved
by also writing Covered Calls positions on these bank stocks in non-dividend paying months. Hopefully, these outperformance results achieved to-date using this strategy will continue with this
March 12th, 2021 Bank of America Covered Calls position.
Two potential return-on-investment results are: (a) +0.9% absolute return (equivalent to +57.8% annualized
return for the next 6 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +1.5%
absolute return (equivalent to +36.1% annualized return over the next 15
days) if the stock is assigned on the March 12th options expiration date.
Bank of America Corp. (BAC) -- New Covered Calls Position
The buy/write transaction was as follows:
02/26/2021 Bought 1,000 shares of Bank of America Corp. stock @ $35.48 per share
02/26/2021 Sold 10 BAC March 12th, 2021 $34.00 Call options @ $1.80 per share
Note: The Open Interest in these Calls was 850 contracts and the Implied Volatility was 30.6
03/04/2021 Ex-dividend of $.18 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $33,686.70
= ($35.48 - $1.80) * 1,000 shares + $6.70 commission
Net Profit Components:
(a) Options Income: +$1,800.00
= ($1.80 * 1,000 shares)
(b) Dividend Income (If BAC shares assigned on 3/3/2021, the business day prior to the 3/4/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If shares assigned at 3/12/2021 options expiration): +$180.00
= $.18 per share x 1,000 shares
(c) Capital Appreciation (If BAC shares assigned early on 3/3/2021): -$1,480.00
= ($34.00 -$35.48) * 1,000 shares; or
(c) Capital Appreciation (If shares above $34.00 strike price at March 12th options expiration): -$1,480.00
= ($34.00 -$35.48) * 1,000 shares
1. Potential Net Profit (If Bank of America shares assigned on 3/3/2021, the day prior to the March 4th ex-dividend date): +$320.00
= (+$1,800.00 options income +$0.00 dividend income - $1,480.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $34.00 strike price at March 12th options expiration): +$500.00
= (+$1,800.00 options income +$180.00 dividend income - $1,480.00 capital appreciation)
1. Absolute Return (If BAC shares assigned on 3/3/2021, the day prior to the March 4th ex-dividend date): +0.9%
= +$320.00/$33,686.70
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +57.8%
= (+$320.00/$33,686.70)*(365/6 days)
2. Absolute Return (If BAC price is above $34.00 strike price at March 12th options expiration): +1.5%
= +$500.00/$33,686.70
Equivalent Annualized Return (If assigned on 3/12/2021 options expiration date): +36.1%
= (+$500.00/$33,686.70)*(365/15 days)
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, all nine criteria are achieved for this Bank of America Covered Calls position.
