Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly ex-dividend of $1.65 per share (4.9% annualized dividend yield) goes ex-dividend on November 9th (which is prior to the November 18th options expiration date). The stock would have to move up in price by the last business day prior to the Nov. 9th ex-div date and by an amount that would cause the time value remaining in the option to decline from its $.74 value today to about $.20 or less. If this occurs, the owner of the Call options might exercise their right to purchase the stock at the $131.00 strike price, in which case the options would immediately expire worthless but the owner of the Calls would then own the stock and would capture the dividend. This early assignment outcome would not be as desirable at a +34.2% annualized return-on-investment (aroi) as if the position would instead be in-the-money and therefore assigned at its November 18th options expiration date--which would achieve a +41.7% aroi. But either result would be attractive since they both exceed my preferred minimum annualized return-on-investment criteria (see items #8 and #9 at the bottom of this post) when using the Dividend Capture Strategy. Also as I prefer, there is no intervening quarterly earnings report since IBM's next quarterly earnings report on January 23rd, 2023 is after the November 18th options expiration date.
As detailed below, two potential return-on-investment results are:
- +0.6% absolute return (equivalent to +34.2% annualized return for the next 6 days) if the stock is assigned early (business day prior to the November 9th ex-dividend date); OR
- +1.8% absolute return (equivalent to +41.7% annualized return over the next 16 days) if the stock is assigned on the November 18th, 2022 options expiration date.
IBM Corporation (IBM) -- New Covered Calls Position
The buy/write transaction was:
11/3/2022 Bought 200 IBM shares @ $134.23
11/3/2022 Sold 2 IBM 11/18/2022 $131.00 Call options @ $3.97
11/9/2022 Upcoming quarterly ex-dividend of $1.65 per share
Two possible overall performance results (including commissions) for this IBM Covered Calls position are as follows:
Covered Calls Net Investment: $26,053.34
= ($134.23 - $3.97) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$792.66
= ($3.97 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Nov. 8th, the last business day prior to the November 9th ex-div date): +$0.00; or
(b) Dividend Income (If IBM stock assigned at the Nov. 18th, 2022 options expiration date): +$330.00
= ($1.65 dividend per share x 200 shares)
(c) Capital Appreciation (If IBM Call options assigned early): -$646.00
+($131.00 strike price - $134.23 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $131.00 strike price at options expiration): -$646.00 +($131.00 - $134.23) * 200 shares
+($131.00 strike price - $134.23 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $131.00 strike price at options expiration): -$646.00 +($131.00 - $134.23) * 200 shares
1. Total Net Profit [If option exercised early]: +$146.66
= (+$792.66 options income +$0.00 dividend income -$646.00 capital appreciation); or
2. Total Net Profit (If IBM shares assigned at $131.00 at the Nov. 18th expiration): +$476.66
= (+$792.66 options income +$330.00 dividend income -$646.00 capital appreciation)
1. Absolute Return-on-Investment [If option exercised early on Nov. 8th (business day prior to ex-dividend date)]: +0.6%
= +$146.66/$26,053.34
Annualized Return-on-Investment (If option exercised early): +34.2%
= (+$146.66/$26,053.34) * (365/6 days); or
2. Absolute Return-on-Investment (If IBM shares assigned at $131.00 at Nov. 18th, 2022 options expiration): +1.8%
= +$476.66/$26,053.34
Annualized Return-on-Investment (If IBM shares assigned at $131.00 at the Nov 18th options expiration): +41.7%
= (+$476.66/$26,053.34) * (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. All nine criteria are achieved for this IBM Covered Calls position.
