Established Covered Calls Position in the Bank of New York Mellon Corp.

A November 4th, 2022 Covered Calls buy/write limit order was placed in Bank of New York Mellon Corp. (ticker BK) at a net debit limit price of $37.50 per share.  The order was executed and 400 shares were purchased at $39.88 and four November 4th Call options were sold at the $38.00 strike price for $2.38 per share.  The Implied Volatility of these Call options was 34.3 when this transaction was executed and the Delta was 72.5.  In addition, there is an upcoming quarterly ex-dividend of $.37 per share (3.7% annual dividend yield) on October 26th which is prior to the options expiration date; so it is included in the potential return-on-investment calculations detailed below. 

The Bank of New York Mellon Corp. 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: 

•  +1.3% absolute return (equivalent to +60.0% annualized return for the next 8 days) if the stock is assigned early (business day prior to the October 26th, 2022 ex-dividend date); OR 

• +2.3% absolute return (equivalent to +46.7% annualized return over the next 18 days) if the stock is assigned on the November 4th, 2022 options expiration date.

These returns will be achieved as long as the Bank of New York Mellon's stock price is above the $38.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $37.13 per share ($39.88 stock purchase price - $2.38 Call options selling price - $.37 ex-dividend amount) provides a substantial 6.9% downside breakeven protection below today's stock purchase price.
 

Bank of New York Mellon Corp. (BK) -- New Covered Calls Position

In the unlikely event that the stock price increases to the point where the current time value (i.e. extrinsic value) of $.50 remaining in the short Call options decays substantially (down to about $.15 or less) by October 25th, 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 400 Bank of New York Mellon shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a very desirable outcome since its +60.0% annualized return-on-investment (aroi) exceeds the +46.7% aroi that would be achieved if the assignment was instead at the November 4th options expiration date.

The simultaneous buy/write transaction was:
10/18/2022 Bought 400 Bank of New York Mellon Corp. shares @ $39.88
10/18/2022 Sold 4 BK Nov. 4th, 2022 $38.00 Call options @ $2.38 per share
10/26/2022 Upcoming quarterly ex-dividend at $.37 per share

Two possible overall performance results (including commissions) for this Bank of New York Mellon Covered Calls position are as follows:
Stock Purchase Cost Basis: $15,002.68
= ($39.88 - $2.38) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$949.32
= ($2.38 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on October 25th, the business day prior to the October 26th ex-div date): +$0.00; or
(b) Dividend Income (If Bank of New York's shares assigned at the Nov 4th, 2022 expiration): +$148.00
= ($.37 dividend per share x 400 shares)

(c) Capital Appreciation (If Bank of New York Mellon's stock assigned early): -$752.00
+($38.00 -$39.88) * 400 shares; or
(c) Capital Appreciation (If BK's shares assigned at $38.00 strike price at expiration): -$752.00
+($38.00-$39.88) * 400 shares

1. Total Net Profit [If option exercised on the last business day prior to the Oct. 26th ex-dividend date)]: +$197.32

= (+$949.32 options income +$0.00 dividend income -$752.00 capital appreciation); or

2. Total Net Profit (If Bank of New York's shares assigned at $38.00 at November 4th, 2022 expiration): +$345.32

= (+$949.32 options income +$148.00 dividend income -$752.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.3%

= +$197.32/$15,002.68

Annualized Return-on-Investment (If option exercised early): +60.0%

= (+$197.32/$15,002.68) * (365/8 days); or

2. Absolute Return-on-Investment (If shares assigned at $38.00 at Nov. 4th expiration date): +2.3%

= +$345.32/$15,002.68

Annualized Return-on-Investment (If BK shares assigned at $38.00 at Nov. 4th, 2022 options expiration): +46.7%

= (+$345.32/$15,002.68) * (365/18 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 Bank of New York Mellon Corp. position.