Established Covered Calls Position in Exxon Mobil Corporation

An August 19th, 2022 Covered Calls buy/write limit order was placed in Exxon Mobil Corporation (ticker XOM) at a net debit limit price of $84.10 per share.  The order was executed this morning when 300 shares were purchased at $88.92 and three 8/19/2022 Call options were simultaneously sold at the $85.00 strike price for $4.82 per share.  The Implied Volatility of these Call options was 33.2 when this transaction was executed which, as preferred by the Covered Calls Advisor, is greater than the current 22.5 of the S&P 500 Volatility Index (VIX).  In addition, there is an upcoming quarterly ex-dividend of $.88 per share (4.0% annual dividend yield) on August 11th, which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established today it had a probability of assignment on the options expiration date of 73.8%. 

Exxon Mobil meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor:

As detailed below, two potential return-on-investment results are: 

•  +1.1% absolute return (equivalent to +55.4% annualized return for the next 7 days) if the stock is assigned early (business day prior to the August 11th, 2022 ex-dividend date); OR 

• +2.1% absolute return (equivalent to +48.1% annualized return over the next 16 days) if the stock is assigned on the August 19th, 2022 options expiration date.

These returns will be achieved as long as Exxon Mobil's stock price is above the $85.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $83.22 per share ($88.92 stock purchase price - $4.82 Call options selling price - $.88 ex-dividend amount) provides a 6.4% downside breakeven protection below today's stock purchase price.
 

Exxon Mobil Corporation (XOM) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $.90 remaining in the short Call options decays substantially (down to about $.15 or less) by August 10th, 2022 (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 300 Exxon Mobil shares away to capture the August 11th dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +55.4% annualized return-on-investment (aroi) exceeds the +48.1% aroi that would be achieved if the assignment occurred instead on the August 19th options expiration date.

The simultaneous buy/write transaction was:
8/4/2022 Bought 300 Exxon Mobil shares @ $88.92
8/4/2022 Sold 3 Exxon Mobil August 19th, 2022 $85.00 Call options @ $4.82 per share
8/11/2022 Upcoming quarterly ex-dividend at $.88 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Covered Calls position are as follows:
Net Investment: $25,226.01
= ($88.92 - $4.82) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,443.99
= ($4.82 *300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on Aug 10th, the business day prior to the August 11th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil's shares assigned at the August 19th, 2022 expiration): +$264.00
= ($.88 dividend per share x 300 shares)

(c) Capital Appreciation (If Exxon Mobil's stock assigned early): -$1,176.00
+($85.00 -$88.92) * 300 shares; or
(c) Capital Appreciation (If Exxon Mobil shares assigned at $85.00 strike price at options expiration): -$1,176.00
+($85.00 -$88.92) * 300 shares

1. Total Net Profit [If option exercised on the last business day prior to the August 11th ex-dividend date)]: +$267.99

= (+$1,443.99 options income +$0.00 dividend income -$1,176.00 capital appreciation); or

2. Total Net Profit (If Exxon Mobil stock assigned at $85.00 at the August 19th, 2022 expiration): +$531.99

= (+$1,443.99 options income +$264.00 dividend income -$1,176.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.1%

= +$267.99/$25,226.01

Annualized Return-on-Investment (If option exercised early): +55.4%

= (+$267.99/$25,226.01) * (365/7 days); or

2. Absolute Return-on-Investment (If Exxon Mobil stock assigned at $85.00 at August 19th expiration date): +2.1%

= +$531.99/$25,226.01

Annualized Return-on-Investment (If Exxon Mobil shares assigned at $85.00 at the 8/19/2022 options expiration date): +48.1%

= (+$531.99/$25,226.01) *(365/16 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 in this Exxon Mobil Corp. position.