As detailed below, the return-on-investment result for this ViacomCBS Inc. Covered Calls position was +3.1% absolute return in 14 days (equivalent to a +80.6% annualized return-on-investment). This result is a good example of the advantage that can accrue from selling in-the-money Covered Calls. Despite the stock declining by 1.6% (from $41.19 purchase price to $40.55 sales price), a nice profit was achieved from this Covered Calls position.
The transactions were as follows:
06/08/2021 Bought 400 shares of ViacomCBS stock @ $41.19 per share
06/08/2021 Sold 4 ViacomCBS June 18th, 2021 $40.00 Call options @ $1.63 per share
Note: the Open Interest in the Call options was 15,736 contracts, so the Bid/Ask spread was narrow at $1.60/$1.68 when this transaction was executed. Also, the Implied Volatility of the Call options was 32.6.
06/14/2021 Ex-dividend of $.24 per share for 400 VIAC shares
06/18/2021 Stock closed below the $40.00 strike price, so 4 VIAC $40.00 Call options expired and 400 shares remained in the Covered Calls Advisor Portfolio
06/21/2021 Sold 400 shares @ $40.55 to close out this VIAC position.
The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $15,826.68
= ($41.19 - $1.63) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$649.32
= ($1.63 * 400 shares) - $2.68 commission
(b) Dividend Income (ViacomCBS stock went ex-dividend on 6/14/2021 at $.24 per share): +$96.00
= $.24 dividend per share x 400 shares
(c) Capital Appreciation (ViacomCBS stock sold at $40.55 per share): -$256.00
= ($40.55 - $41.19) * 400 shares
Total Net Profit: +$489.32
= (+$649.32 options income +$96.00 dividend income -$256.00 capital appreciation)
Absolute Return-on-Investment: +3.1%
= +$489.32/$15,826.68
Equivalent Annualized Return: +80.6%
= (+$489.32/$15,826.68)*(365/14 days)
