ViacomCBS goes ex-dividend at $.24 per share (2.3% annualized dividend yield at the current stock price) on June 14th which is prior to the June 18th 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 important to the Covered Calls Advisor's analysis, the next quarterly earnings report on August 5th, 2021 is after the June 18th options expiration date.
As shown below, two potential return-on-investment result are: (1) +1.1% absolute
return in 6 days (equivalent to a +66.6% annualized
return-on-investment if VIAC stock is assigned at $40.00 on the day prior to the June 14th ex-dividend date; OR (2) +1.7% absolute
return in 11 days (equivalent to a +56.5% annualized
return-on-investment if assigned at the June 18th expiration.
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 Upcoming ex-dividend of $.24 per share
Two possible overall performance results (including commissions) would be 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 (If ViacomCBS stock assigned on day prior to June 14th ex-dividend date): +$0.00; OR
(b) Dividend Income (If ViacomCBS stock assigned on June 18th options expiration date): $96.00
= $.24 dividend per share x 400 shares
(c) Capital Appreciation (If ViacomCBS stock is assigned at $40.00 on the day prior to the June 14th ex-dividend date): -$476.00
= ($40.00 - $41.19) * 400 shares; OR
(c) Capital Appreciation (If ViacomCBS stock is above $40.00 strike price at the June 18th expiration): -$476.00
= ($40.00 - $41.19) * 400 shares
1. Total Net Profit (If ViacomCBS stock assigned on day prior to June 14th ex-dividend date): +$173.32
= (+$649.32 options income +$0.00 dividend income -$476.00 capital appreciation): OR
2. Total Net Profit (If stock assigned on June 18th options expiration date): +$269.32
= (+$649.32 options income +$96.00 dividend income -$476.00 capital appreciation)
1. Absolute Return (If ViacomCBS stock assigned on day prior to June 14th ex-dividend date): +1.1%
= +$173.32/$15,826.68
Equivalent Annualized Return: +66.6%
= (+$322.66/$15,826.68) * (365/6 days); OR
2. Absolute Return (If ViacomCBS stock assigned on June 18th options expiration date): +1.7%
= +$269.32/$15,826.68
Equivalent Annualized Return: +56.5%
= (+$269.32/$15,826.68)*(365/11 days)
Either outcome would provide a very good return-on-investment result. These returns will be achieved as long as the stock is above the $40.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $39.32 ($41.19 -$1.63 -$.24) provides 4.5% downside protection below today's purchase price.
Using the Cox-Ross-Rubinstein Options Pricing Model, the probability of making a profit (if held until the June 18th options expiration) for this ViacomCBS Covered Calls position is 69.7%, so the approximate expected value annualized ROI of this investment (if held until expiration) is +39.4% (+56.5% * 69.7%), an attractive result for this in-the-money Covered Calls position.
The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy. The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved which is the case for this ViacomCBS Inc. position, and eight criteria were met in this case (as shown in the chart below).
