Established Covered Calls in Abbvie Inc. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Abbvie Inc. (ticker ABBV) with the purchase of 200 shares at $107.51 per share and two April 23rd, 2021 Call options were sold for $4.29 per share at the $104.00 strike price.  This transaction occurred as a buy/write limit order at a net debit of $103.22 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.78 per share = [$4.29 Call options premium received - ($107.51 stock purchase price - $104.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at 67.7 when this buy/write transaction was executed, which approximates the probability of assignment on the April 23rd, 2021 options expiration date. 

Abbvie goes ex-dividend at $1.30 per share (4.8% annualized dividend yield at the current stock price) on April 14th which is prior to the April 23rd options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, eight of the nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and the next quarterly earnings report on April 30th, 2021 is after the April 23rd options expiration date. 

Abbvie is a research-based pharmaceutical company with a strong pipeline in immunology, oncology, neuroscience plus targeted efforts in cystic fibrosis and women's health.  They acquired Allergan (think Botox) almost a year ago which aids Abbvie's growth prospects.  Abbvie is currently a very good value based on its current and forward year P/E ratios.  But its #1 drug (Humira) faces biosimilar competition beginning in 2023, so its aggressive pipeline and acquisition strategy is designed to mitigate the upcoming revenue decline from that event.  But the Covered Calls Advisor does not view Abbvie as a long-term core holding.  Instead, because of its generous dividend, it will continue to re-evaluated each quarter as a Dividend Capture Strategy candidate, just like this current Abbvie Covered Calls position. 

Two potential return-on-investment results are: (a) +0.8% absolute return (equivalent to +34.5% annualized return for the next 8 days) if the stock is assigned early on the day prior to the April 14th ex-dividend date; or (b) +2.0% absolute return (equivalent to +40.9% annualized return for the next 18 days) if the stock is assigned at market close on the April 23rd, 2021 options expiration date.  

The approximate expected value annualized return on investment is +27.7% (+40.9% aroi x 67.7% probability of assignment).   

 

Abbvie Inc. (ABBV) -- New Covered Calls Position

The simultaneous buy/write transaction was as follows:
04/06/2021 Bought 200 shares of Abbvie Inc. stock @ $107.51 per share 
04/06/2021 Sold 2 ABBV April 23rd, 2021 $104.00 Call options @ $4.29 per share
04/14/2021 Upcoming ex-dividend of $1.30 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $20,645.34
= ($107.51 - $4.29) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$858.00
= ($4.29 * 200 shares)
(b) Dividend Income (If Abbvie shares assigned on 4/13/2021, the business day prior to the 4/14/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If Abbvie shares assigned at the April 23rd, 2021 options expiration): +$260.00
= $1.30 per share x 200 shares
(c) Capital Appreciation (If ABBV shares assigned early on 4/13/2021): -$702.00
= ($104.00 strike price - $107.51 stock purchase price) * 300 shares; or
(c) Capital Appreciation (If ABBV shares assigned with stock above $104.00 strike price on the April 23rd options expiration): -$702.00
= ($104.00 strike price - $107.51 stock purchase price) * 200 shares

1. Potential Net Profit (If Abbvie shares assigned early on 4/13/2021, the day prior to the ex-dividend date): +$156.00
= (+$858.00 options income +$0.00 dividend income - $702.00 capital appreciation)
2. Potential Net Profit (If ABBV price is above $104.00 strike price at April 23rd options expiration): +$416.00
= (+$858.00 options income +$260.00 dividend income - $702.00 capital appreciation)

1. Absolute Return (If EOG shares assigned early on the day prior to the April 14th ex-dividend date): +0.8%
= +$156.00/$20,645.34
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +34.5%
= (+$156.00/$20,645.34)*(365/8 days)
2. Absolute Return (If Abbvie price is above $104.00 strike price at April 23rd options expiration): +2.0%
= +$416.00/$20,645.34
Equivalent Annualized Return (If assigned on 3/26/2021 options expiration date): +40.9%
= (+$416.00/$20,645.34)*(365/18 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, eight criteria are achieved for this Abbvie Inc. Covered Call position.