On December 6th, 2021, a Covered Calls position was established in The Buckle, Inc. (BKE) with a March 18th, 2022 options expiration date. Three hundred BKE shares were purchased @ $48.1869 and 3 March 18th, 2022 $37.50 Call options were sold @ $11.94 per share, hence the time value per share in the position was $1.2531 [$11.94 - ($48.1869 - $37.50)].
On December 17th, BKE went ex-dividend at a total of $6.00 per share ($.35 per share regular quarterly dividend and a $5.65 "special dividend"). At that time, I neglected to recognize the "special" dividend and the fact that it reduces the strike price of the Call options by the $5.65 amount)--this adjustment is reflected in the detailed results below. Although "special dividends" that effect options strike prices on their ex-dividend date are relatively rare, going forward I will be more diligent about taking that into consideration in my return-on-investment calculations prior to entering the position.
Yesterday, I placed a Covered Calls unwind limit order at a net credit of $31.10 per share to Sell-to-Close the 300 BKE shares and simultaneously Buy-to-Close the 3 BKE Call options. At $31.10, this would provide a net profit in the Covered Calls position of $.5031 per share ($1.2531 time value when position originally bought - $.75 time value remaining when the position was sold (i.e. unwound). This limit order was executed about 3 hours later at 1:25pm at a BKE stock price of $41.48 per share and the Calls at $10.38 per share. In addition, the $.35 dividend was captured on Dec. 17th and this is included in the annualized-return-on-investment results and the $5.65 special dividend captured was offset by the $5.65 decline in the Call options' strike price.
As detailed below, the return-on-investment results for this Covered Calls position in The Buckle, Inc. was +2.3% absolute
return in 16 days (equivalent to a +52.8% annualized
return-on-investment).
The Buckle, Inc. (BKE) -- Covered Calls Position Closed Out
The buy/write transaction today was as follows:
12/06/2021 Bought 300 The Buckle, Inc. shares @ $48.1869
12/06/2021 Sold 3 BKE 3/18/2022 $37.50 Call options @ $11.94 per share. The Implied Volatility of these Call options was approximately 55 when this position was established.
12/17/2021 Regular quarterly ex-dividend of $.35 per share
12/17/2021 Special ex-dividend of $5.65 per share. The strike price is also adjusted by $5.65 from its original $37.50 to $31.85.
12/22/2021 Unwound and therefore closed out the Covered Calls position: Sold-to-Close the 300 BKE shares at $41.48 per share and simultaneously Bought-to-Close the 3 BKE $31.85 Call options at $10.38 per share.
The overall performance results (including commissions) for this The Buckle, Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $10,876.08
= ($48.1869 - $11.94) * 300 shares + $2.01 commissions
Net Profit Components:
(a) Options Income: +$463.98
= ($11.94 - $10.38) * 300 shares) - $4.02 commissions
(b) Dividend Income: +$1,800.00
= ($.35 regular dividend per share + $5.65 per share special dividend) x 300 shares
(c) Capital Appreciation: -$2,012.07
+($41.48 - $48.1869) * 300 shares
