Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields. Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions. This new October 15th, 2021 JPMorgan Chase Covered Calls position continues the Dividend Capture Strategy of often selling
in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration
month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).
The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at
options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date. So far, applying this approach has provided attractive annualized return results -- much better than would be achieved
if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.
Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly $1.00 per share ex-dividend on October 5th is prior to the October 15th options expiration date. An additional consideration in this position is that the next quarterly earnings report is on October 13th which is prior to the October 15th options expiration date. Prior to the earnings report, the Covered Calls Advisor will be monitoring this position closely every day since closing out the position on or after the ex-dividend date but prior to the earnings date is a likely possibility.
As detailed below, two potential return-on-investment results are:
- +0.8% absolute return (equivalent to +57.6% annualized return for the next 5 days) if the stock is assigned early (business day prior to the October 5th ex-dividend date); OR
- +1.4% absolute return (equivalent to +32.4% annualized return over the next 16 days) if the stock is assigned on the October 15th options expiration date.
JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
The buy/write transaction was:
09/30/2021 Bought 200 JPM shares @ $165.29
09/30/2021 Sold 2 JPM 10/15/2021 $160.00 Call options @ $6.55
10/05/2021 Upcoming quarterly ex-dividend of $1.00 per share
Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $31,749.34
= ($165.29 - $6.55) *200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$1,308.66
= ($6.55 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Oct 4th, the business day prior to the Oct 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the October 15th, 2021 expiration): +$200.00
= ($1.00 dividend per share x 200 shares)
+($160.00 -$165.29) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $160.00 strike price at expiration): -$1,058.00
+($160.00-$165.29) * 200 shares
1. Total Net Profit [If option exercised on the last business day prior to the Oct. 5th ex-dividend date)]: +$250.66
Either outcome provides a very good return-on-investment result for this investment. These returns will be achieved as long as the stock is above the $160.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $157.74 ($165.29 -$6.55 -$1.00) provides 4.6% downside protection below today's purchase price.
There is a 73.6% probability that the Calls will be above the $160.00 strike price at options expiration. If so, the +32.4% annualized roi profit detailed above would be achieved.
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. Eight of the nine criteria are achieved in this JPMorgan position.
