Established Covered Calls in Merck & Co. Inc. Using Dividend Capture Strategy

Today, a Covered Call position was established in Merck & Co. Inc. (ticker MRK) with the purchase of 200 shares at $72.24 per share and two March 26th, 2021 Call options were sold for $2.84 per share at the $70.00 strike price.  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at 71.0 when this buy/write transaction was executed, which approximates the probability of assignment on the March 26th, 2021 options expiration date.  Merck goes ex-dividend at $.65 per share (3.6% dividend yield at the current stock price) on March 12th which is prior to the March 26th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  All nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and there is no quarterly earnings report prior to the options expiration date. 

Two potential return-on-investment results are: (a) +0.9% absolute return (equivalent to +39.4% annualized return for the next 8 days) if the stock is assigned early (on the last trading day prior to the March 12th, 2021 ex-dividend date); OR (b) +1.8% absolute return (equivalent to +28.6% annualized return over the next 23 days) if the stock is assigned on the March 26th options expiration date. 

Merck & Co. Inc. (MRK) -- New Covered Calls Position

The simultaneous buy/write transaction was as follows:
03/04/2021 Bought 200 shares of Merck & Co. stock @ $72.24 per share 
03/04/2021 Sold 2 MRK March 26th, 2021 $70.00 Call options @ $2.84 per share
Note: The Open Interest in these Calls was 334 contracts and the Implied Volatility was 20.0 when this buy/write transaction executed.
03/12/2021 Upcoming ex-dividend of $.65 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $13,881.34
= ($72.24 - $2.84) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$568.00
= ($2.84 * 200 shares)
(b) Dividend Income (If Merck shares assigned on 3/11/2021, the business day prior to the 3/12/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If Merck shares assigned at 3/26/2021 options expiration): +$130.00
= $.65 per share x 200 shares
(c) Capital Appreciation (If MRK shares assigned early on 3/11/2021): -$448.00
= ($70.00 -$72.24) * 200 shares; or
(c) Capital Appreciation (If MRK shares assigned with stock above $70.00 strike price at March 26th options expiration): -$448.00
= ($70.00 -$72.24) * 200 shares

1. Potential Net Profit (If Merck shares assigned on 3/11/2021, the day prior to the March 12th ex-dividend date): +$120.00
= (+$568.00 options income +$0.00 dividend income - $448.00 capital appreciation)
2. Potential Net Profit (If MRK price is above $70.00 strike price at March 26th options expiration): +$250.00
= (+$568.00 options income +$130.00 dividend income - $448.00 capital appreciation)

1. Absolute Return (If Merck shares assigned early on 3/11/2021, the day prior to the March 12th ex-dividend date): +0.9%
= +$120.00/$13,388.34
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +39.4%
= (+$120.00/$13,388.34)*(365/8 days)
2. Absolute Return (If Merck price is above $70.00 strike price at March 26th options expiration): +1.8%
= +$250.00/$13,881.34
Equivalent Annualized Return (If assigned on 3/26/2021 options expiration date): +28.6%
= (+$250.00/$13,881.34)*(365/23 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 Merck & Co. Inc. Covered Call position.