As expected with the stock market near its all time high, the CBOE Volatiliy Index (VIX) is currently at 21.3 which is close to its low point during the past year. But with some available cash from assignment of recent weekly Covered Calls, the Covered Calls Advisor decided to take advantage of the upcoming quarterly ex-distribution this Friday in the SPDR S&P 500 ETF (SPY) using the Dividend Capture Strategy. The amount of the distribution has not yet been declared, but I estimate it at around $1.41 per share based on SPY's historic distribution trend.
The SPY quarterly March 31st, 2021 options expiration date was selected and a relatively conservative deep-in-the-money $380.00 strike price was selected when the stock was at $392.22 and the Call option premium received was $13.64 per share. So, the time value per share was $1.42 = [$380.00 strike price - ($392.22 stock price - $13.64 Call option premium)]. The Call option Delta was 81.1 which approximates the probability of assignment (stock price above the strike price) on the March 31st expiration date.
Two potential return-on-investment results are: (1) +0.4% absolute
return in 5 days (equivalent to a +27.4% annualized
return-on-investment) if the position is assigned early this Thursday on the last day prior to the ex-distribution date; or (2) +0.7% absolute
return in 17 days (equivalent to a +16.0% annualized
return-on-investment) if the position is assigned on the March 31st, 2021 options expiration date.
SPDR S&P 500 ETF (SPY) -- New Covered Call Position
03/15/2021 Bought 100 shares of SPDR S&P 500 ETF @ $392.22 per share
03/15/2021 Sold 1 SPY March 31st, 2021 $380.00 Call option @ $13.64 per share
Note: the Implied Volatility of the Call options was 17.2 and its Open Interest was 3,235 contracts
03/19/2021 Ex-distribution estimated at $1.41 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $37,858.67
= ($392.22 - $13.64) * 100 shares + $.67 commission
Net Profit Components:
(a) Options Income: +$1,364.00
= ($13.64 * 100 shares)
(b) Distribution Income (If SPY shares assigned on day prior to ex-distribution date): +$0.00; or
(b) Distribution Income (If SPY shares assigned on March 31st options expiration date): +$141.00
= $1.41 per share x 100 shares
(c) Capital Appreciation (If SPY is above $380.00 strike price early on March 18th, 2021): -$1,222.00
= ($380.00 - $392.22) * 100 shares; or
(c) Capital Appreciation (If SPY is above $380.00 strike price at the March 31, 2021 expiration): -$1,222.00
= ($380.00 - $392.22) * 100 shares
1. Total Net Profit (If SPY shares assigned on day prior to March 19th ex-distribution date): +$142.00
= (+$1,364.00 options income +$0.00 dividend income -$1,222.00 capital appreciation); or
2. Total Net Profit (If SPY shares assigned on March 31st options expiration date): +$283.00
= (+$1,364.00 options income +$141.00 dividend income -$1,222.00 capital appreciation)
1. Absolute Return (If SPY shares assigned on day prior to ex-distribution date): +0.4%
= +$142.00/$37,858.67
Equivalent Annualized Return: +27.4%
= (+$142.00/$37,858.67)*(365/5 days); or
2. Absolute Return (If SPY shares assigned on March 31st options expiration date): +0.7%
= +$283.00/$37,858.67
Equivalent Annualized Return: +16.0%
= (+$283.00/$37,858.67)*(365/17 days)
