A moderately in-the-money strike price was selected with a Delta of 76.1 when this buy/write transaction was executed. The time value per share was $.20 = [$33.00 strike price - ($34.16 stock price - $1.36 Call options premium)].
Two potential return-on-investment results are: (1) +0.6% absolute
return in 6 days (equivalent to a +37.1% annualized
return-on-investment) if the position is assigned early on March 19th (this Friday) on the last business day prior to next Monday's ex-distribution date; or (2) +1.1% absolute
return in 17 days (equivalent to a +23.0% annualized
return-on-investment) if the position is assigned on the April 1st, 2021 options expiration date.
Financial Select Sector SPDR Fund(XLF) -- New Covered Calls Position
The buy/write transaction was as follows:
03/16/2021 Bought 400 shares of the Financial Select Sector SPDR Fund @ $34.16 per share
03/16/2021 Sold 4 XLF April 1st, 2021 $33.00 Call options @ $1.36 per share when the Implied Volatility of the Call options was 21.6
03/22/2021 Ex-distribution of $.1512 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $13,122.68
= ($34.16 - $1.36) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$544.00
= ($1.36 * 400 shares)
(b) Distribution Income (If XLF shares assigned on day prior to ex-distribution date): +$0.00; or
(b) Distribution Income (If XLF shares assigned on April 1st options expiration date): +$60.48
= $.1512 per share x 400 shares
(c) Capital Appreciation (If XLF is above $33.00 strike price and early assignment on March 19th, 2021): -$464.00
= ($33.00 - $34.16) * 400 shares; or
(c) Capital Appreciation (If XLF is above $33.00 strike price at the April 1st, 2021 expiration): -$464.00
= ($33.00 - $34.16) * 400 shares
1. Total Net Profit (If XLF shares assigned on last business day prior to March 22nd ex-distribution date): +$80.00
= (+$544.00 options income +$0.00 dividend income -$464.00 capital appreciation); or
2. Total Net Profit (If XLF shares assigned on April 1st options expiration date): +$140.48
= (+$544.00 options income +$60.48 dividend income -$464.00 capital appreciation)
1. Absolute Return (If XLF shares assigned on last business day prior to ex-distribution date): +0.6%
= +$80.00/$13,122.68
Equivalent Annualized Return: +37.1%
= (+$80.00/$13,122.68)*(365/6 days); or
2. Absolute Return (If XLF shares assigned on April 1st options expiration date): +1.1%
= +$140.48/$13,122.68
Equivalent Annualized Return: +23.0%
= (+$140.48/$13,122.68)*(365/17 days)
