Covered Calls Established in The Buckle, Inc. Using the Covered Calls Advisor's Dividend Capture Strategy

Today, a new Covered Calls position was established in The Buckle, Inc.(ticker BKE) when 300 shares were purchased at $48.1869 and three March 18th, 2022 Call options were sold at $11.94 per share at the $37.50 strike price.  The time value was $1.2531 per share [$11.94 Call options premium - ($48.1869 stock purchase price - $37.50 strike price)]. This morning, the company announced an upcoming ex-dividend of $.35 per share and a "special" ex-dividend of $5.65 per share, both of which will go ex-dividend on December 17th, 2021. As is normally the case with generous "special dividends", it demonstrates not only the rapidly growing profitability of the company, but also shows management's willingness to share a substantial portion of their profits with their shareholders. Two potential return-on-investment results for this position are detailed below--which in addition to a possible assignment next year on the estimated tentative February 18th, 2022 options expiration date, also includes the possibility of early exercise on the day prior to the December 17th ex-dividend date.  So, this position is consistent with the Covered Calls Advisor's Dividend Capture Strategy used on some positions, with the associated 9 criteria shown in the chart at the bottom of this post. This moderately in-the-money position was established when the Delta of the Call options was about 81.2, which approximates a probability of 81.2% that the Call options will be in-the-money on the options expiration date.

The Buckle, Inc. is small-capitalization company since their current market cap is $2.3 billion. They offer casual apparel (they are considered a denim destination), footwear, and accessories that appeals to young men and women located in their 441 stores in 42 states. Including their Q4 2022 earnings report tentatively on February 18th, 2022, they are estimated to attain $4.81 per share in current fiscal year earnings -- a P/E Ratio of 10.0 based on today's $48.1869 stock purchase price.    

As detailed below, a potential return-on-investment result is +3.4% absolute return (equivalent to +114.1% annualized return for the next 11 days) if the stock is assigned early (business day prior to the December 17th ex-date); OR +20.0% absolute return (equivalent to +70.8% annualized return-on-investment over the next 103 days) if the stock is assigned on the March 18th, 2022 options expiration date.  These very high potential annualized return-on-investment results demonstrates the very attractive benefit that can accrue by establishing Covered Calls with intervening one-time "special dividends" with quality companies.

The Buckle, Inc. (BKE) -- New Covered Calls Position
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 Upcoming regular quarterly ex-dividend of $.35 per share plus a "special" ex-dividend of $5.65 per share.

Two possible 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: +$3,579.99
= ($11.94 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the day prior to the Dec. 17th, 2021 ex-div date): +$0.00; or
(b) Dividend Income (If BKE shares assigned at March 18th, 2022 options expiration): +$1,800.00
= [$6.00 dividends per share ($.35 quarterly dividend + $5.65 special dividend) x 300 shares]
(c) Capital Appreciation (If BKE shares assigned early on Dec. 16th): -$3,206.07
+($37.50 - $48.1869) * 300 shares ;or
(c) Capital Appreciation (If Buckle shares assigned at $37.50 strike price at options expiration): -$3,206.07
+($37.50 - $48.1869) * 300 shares

1. Total Net Profit [If options exercised on Dec. 16th (last day prior to the Dec. 17th ex-dividend date)]: +$373.92

= (+$3,579.99 options income +$0.00 dividend income - $3,2096.07 capital appreciation); or

2. Total Net Profit (If BKE shares assigned at $37.50 strike price at March 18th, 2022 expiration): +$2,173.92

= (+$3,579.99 options income + $1,800.00 dividend income - $3,206.07 capital appreciation)

1. Absolute Return-on-Investment [If BKE Call options exercised on business day prior to ex-dividend date]: +3.4%

= +$373.92/$10,876.08

Annualized Return-on-Investment (If options exercised early): +114.1%

= (+$373.92/$10,876.08) * (365/11 days); or

2. Absolute Return-on-Investment (If BKE shares assigned at $37.50 strike price on March 18th, 2022 options expiration date): +20.0%

= +$2,173.92/$10,876.08

Annualized Return-on-Investment (If Buckle stock assigned at $37.50 strike price at the March 18th, 2022 options expiration date): +70.8%

= (+$2,173.92/$10,876.08) *(365/103 days)

These returns will be achieved as long as the stock is above the $37.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $30.2469 ($48.1869 -$11.94 -$6.00) provides 37.2% 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, eight of the nine criteria are met for this The Buckle, Inc. Covered Calls position.