Today a Covered Call position was established in FedEx Corporation (ticker symbol FDX) when the Covered Calls Advisor's buy/write limit order was executed. One hundred shares were purchased at $210.22 and 1 March 18th, 2022 Call option was sold at $23.27 at the $190.00 strike price--so, the corresponding time value was $3.05 per share [$23.27 Call option premium - ($210.22 stock purchase price - $190.00 strike price)]. Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a deep in-the-money Covered Call position was established -- the Delta was 80.1, which closely approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, the Implied Volatility of the Calls was significantly higher than normal for FedEx at 50.4 when the position was established. Part of this elevated probability can be attributed to the next quarterly earnings report on the day prior to the March 18th options expiration date and also the spike higher today in the S&P 500 Volatility Index (VIX) to 34.2. There is an upcoming ex-dividend on March 4th of $.75 per share (1.4% annual dividend yield), which is included in the potential return-on-investment results shown below.
Two potential return-on-investment results for this FedEx Corporation Covered Call position are: (a) +1.6% absolute return (equivalent to +74.3% annualized return for the next 8 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +2.1% absolute return (equivalent to +33.1% annualized return over the next 23 days) if the stock is assigned on the March 18th, 2022 options expiration date.FedEx Corporation (FDX) -- New Covered Call Position
The buy/write transaction was:
2/24/2022 Bought 100 FedEx shares @ $210.22
2/24/2022 Sold 1 FedEx 3/18/2022 $190.00 Call option @ $23.27
Note: the Implied Volatility of these Call options was 50.4 when this position was established.
3/04/2022 Upcoming quarterly ex-dividend of $.75 per share
Two possible overall performance results (including commissions) for this
FedEx Covered Call position are as follows:
Covered Call Cost Basis: $18,694.33
= ($210.22 - $23.27) * 100 shares + $.67 commission
Net Profit Components:
(a) Options Income: +$2,326.33
= ($23.27 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If FedEx shares assigned at March 18th, 2022 expiration): +$75.00
= ($.75 dividend per share x 100 shares)
(c) Capital Appreciation (If FedEx shares assigned early): -$2,022.00
+($190.00 strike price -$210.22 stock purchase cost) * 100 shares; or
(c) Capital Appreciation (If FedEx shares assigned at $190.00 strike price at options expiration): -$2,022.00
+($190.00- $210.22) * 100 shares
Either outcome would provide an attractive return-on-investment result. These returns will be achieved as long as the stock is above the $190.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $186.20 ($210.22 -$23.27 -$.75) provides a substantial 11.4% downside protection below today's purchase price.
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 in the chart below, eight of the nine criteria are achieved for this FedEx Covered Call position.
As always, I encourage your email questions related to Covered Calls at any time. My email address is partlow@cox.net.
Best Wishes,
Jeff Partlow (The Covered Calls Advisor)
