HP has a quarterly ex-dividend of $.1938 per share on June 8th (a 2.6% annual dividend yield). Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the June 18th options expiration date.
HP Inc. just released quarterly earnings after the market close yesterday. Sales and earnings per share expectations were exceeded and HP also increased its guidance for current fiscal year EPS to $3.40-$3.50 per share. Despite this positive report, the stock had declined by 8.8% from yesterday's closing price of $32.10 to $29.26 this morning when the Covered Calls Advisor's buy/write limit order of $27.74 was executed. At this $29.26 purchase price, the P/E ratio based on the $3.45 midpoint of this year's EPS guidance would be only 8.5, a very attractive valuation for this leading technology hardware company. Also, HP was on the Covered Calls Advisor's 'Watchlist' since it appeared in the top 7% of S&P 500 companies as identified in the Covered Calls Advisor's 'S&P 500 Value and Profitability' stock screener.
As detailed below, two potential return-on-investment results are:
- +0.9% absolute return (equivalent to +31.1% annualized return-on-investment for the next 11 days) if the stock is assigned early (business day prior to the June 8th ex-dividend date); OR
- +1.6%
absolute return (equivalent to +27.1% annualized return over the next 22
days) if the stock is assigned on the June 18th options expiration date.
HP Inc. (HPQ) -- New Covered Calls Position
The buy/write transaction was:
05/28/2021 Sold 3 HP Inc. 6/18/2021 $28.00 Call options @ $1.52
Note 1: the Implied Volatility of the Calls was 26.4 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.26 per share = [$1.52 Call options premium - ($29.26 stock price - $28.00 strike price)]
06/08/2021 Upcoming quarterly dividend of $.1938 per share
Two possible overall performance results (including commissions) for this HP Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $8,324.01
= ($29.26 - $1.52) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$456.00
= ($1.52 * 300 shares)
(b) Dividend Income (If options exercised early on June 7th, the business day prior to the June 8th ex-div date): +$0.00; or
(b) Dividend Income (If HPQ stock assigned at June 18th, 2021 expiration): +$58.14
= ($.1938 dividend per share x 300 shares)
+($28.00 - $29.26) * 300 shares; or
(c) Capital Appreciation (If HP Inc. shares assigned at $28.00 strike price at June 18th options expiration): -$378.00
+($28.00 - $29.26) * 300 shares
= (+$136.14/$8,324.01)*(365/22 days)
Either outcome provides a satisfactory return-on-investment result for this HP Inc. investment. These returns will be achieved as long as the stock is above the $28.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $27.5462 ($29.26 -$1.52 -$.1938) provides 5.9% downside protection below today's stock purchase price.
At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position. As shown below with this HP Inc. position, all nine criteria were met.
