Covered Calls Established in ConocoPhillips Using Dividend Capture Strategy

Today, a Covered Calls position was established in ConocoPhillips (ticker symbol COP) when two hundred COP shares were purchased at $57.54 and two July 30th, 2021 Call options were sold for $2.18 per share at the $56.00 strike price.  The net debit limit order at $55.36 was executed, so the time value was $.64 per share [$2.18 Call options premium - ($57.54 stock purchase price - $56.00 strike price)]. There is an upcoming quarterly ex-dividend of $.43 (annual dividend yield of 3.0%) on July 23rd., so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the July 30th, 2021 options expiration date.  As preferred by the Covered Calls Advisor, the next quarterly earnings report will be on August 3rd, 2021 is just after the options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of 68.0. 

As detailed below, a potential return-on-investment result is +1.2% absolute return (equivalent to +52.7% annualized return for the next 8 days) if the stock is assigned early (business day prior to the July 23rd ex-date); OR +1.9% absolute return (equivalent to +44.1% annualized return over the next 16 days) if the stock is assigned on the July 30th, 2021 options expiration date.


ConocoPhillips (COP) -- New Covered Calls Position

If the current time value (i.e. extrinsic value) of $.64 per share remaining in the two short Call options decays substantially (down to about $.15 or less) by July 22nd (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 ConocoPhillips shares away to capture the dividend payment.

The transactions were:
07/15/2021 Bought 200 ConocoPhillips shares @ $57.54
07/15/2021 Sold 2 COP 7/30/2021 $56.00 Call options @ $2.18
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility of the Call options was 28.1 when this Covered Calls position was established.
07/23/2021 Upcoming quarterly ex-dividend of $.43 per share

Two possible overall performance results (including commissions) for this ConocoPhillips Covered Calls position are as follows:
Covered Calls Cost Basis: $11,073.34
= ($57.54 - $2.18) *200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$436.00
= ($2.18 * 200 shares)
(b) Dividend Income (If option exercised early on the business day prior to the July 23rd ex-div date): +$0.00; or
(b) Dividend Income (If ConocoPhillips shares assigned at July 30th, 2021 expiration): +$86.00
= ($.43 dividend per share x 200 shares)
(c) Capital Appreciation (If COP assigned early on Oct 17th): -$308.00
+($56.00 -$57.54) * 200 shares ;or
(c) Capital Appreciation (If COP assigned at $56.00 strike price at options expiration): -$308.00
+($56.00 -$57.54) * 200 shares

1. Total Net Profit [If option exercised on July 22nd (business day prior to the July 23rd ex-dividend date)]: +$128.00

= (+$436.00 +$0.00 -$308.00); or

2. Total Net Profit (If ConocoPhillips shares assigned at $56.00 strike price at July 30th, 2021 expiration): +$214.00

= (+$436.00 +$86.00 -$308.00)

1. Absolute Return [If COP options exercised on business day prior to ex-dividend date]: +1.2%

= +$128.00/$11,073.34

Annualized Return (If option exercised early): +52.7%

= (+$128.00/$11,073.34)*(365/8 days); or

2. Absolute Return (If ConocoPhillips shares assigned at $56.00 at July 30th, 2021 expiration): +1.9%

= +$214.00/$11,073.34

Annualized Return (If COP stock assigned at $55.00 at Oct 25, 2019 expiration): +44.1%

= (+$214.00/$11,073.34) *(365/16 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $56.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $54.93 ($57.54 -$2.18 -$.43) provides 4.5% downside protection below today's purchase price.

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.  As shown in the table below, all nine criteria are achieved for this ConocoPhillips Covered Calls position.