Bank of America goes ex-dividend at $.21 per share (1.8% annualized dividend yield at the current stock price) this Thursday, December 2nd, which is prior to the Dec. 17th options expiration date, so this dividend is included in the potential return-on-investment results shown below. Also shown below, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and (as preferred by the Covered Calls Advisor) the next quarterly earnings report on January 19th, 2022 is after the December 17th, 2021 options expiration date.
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 December 17th, 2021 Bank of America 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). This Bank of America Covered Calls position using the Covered Calls Advisor's Dividend Capture Strategy is very comparable to the BAC Covered Calls position done last quarter (see here).
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 Bank of America Covered Calls position are: (a) +1.2% absolute return (equivalent to +151.2% annualized
return for the next 3 days) in the very unlikely event that the stock is assigned early [this Wednesday which is the last trading day prior to the Dec. 2nd ex-dividend date]; OR (b) +1.7%
absolute return (equivalent to +33.1% annualized return over the next 19
days) if the stock is assigned on the December 17th, 2021 options expiration date.
Bank of America Corp. (BAC) -- New Covered Calls Position
The buy/write transaction was as follows:
11/29/2021 Bought 500 shares of Bank of America Corp. stock @ $45.50 per share
11/29/2021 Sold 5 BAC Dec. 17th, 2021 $44.00 Call options @ $2.04 per share
Note: The Open Interest in these Calls was 16,908 contracts and their Implied Volatility was 28.3
12/02/2021 Ex-dividend of $.21 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $21,733.35
= ($45.50 - $2.04) * 500 shares + $3.35 commission
Net Profit Components:
(a) Options Income: +$1,020.00
= ($2.04 * 500 shares)
(b) Dividend Income (If BAC shares assigned on 12/1/2021, the business day prior to the 12/2/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at 12/17/2021 options expiration): +$105.00
= $.21 per share x 500 shares
(c) Capital Appreciation (If BAC shares assigned early on 9/01/2021): -$750.00
= ($44.00 -$45.50) * 500 shares; or
(c) Capital Appreciation (If shares above $44.00 strike price at the Dec. 17th options expiration): -$750.00
= ($44.00 -$45.50) * 500 shares
1. Potential Net Profit (If Bank of America shares assigned on 12/1/2021, the day prior to the Dec. 2nd ex-dividend date): +$270.00
= (+$1,020.00 options income +$0.00 dividend income - $750.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $44.00 strike price at the Dec. 17th options expiration): +$375.00
= (+$1,020.00 options income +$105.00 dividend income - $750.00 capital appreciation)
1. Absolute Return (If BAC shares assigned on 12/1/2021, the day prior to the Dec.2nd ex-dividend date): +1.2%
= +$270.00/$21,733.35
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +151.2%
= (+$270.00/$21,733.35)*(365/3 days)
2. Absolute Return (If BAC price is above $44.00 strike price at the Dec. 17th options expiration): +1.7%
= +$375.00/$21,733.35
Equivalent Annualized Return (If assigned on 6/18/2021 options expiration date): +33.1%
= (+$375.00/$21,733.35)*(365/19 days)
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. As shown below, all nine criteria are achieved for this Bank of America Covered Calls position.
