A December 16th, 2022 Covered Calls buy/write limit order was placed in Tapestry Inc. (ticker TPR) at a net debit limit price of $34.51 per share. Tapestry Inc. owns and is the designer and marketer of luxury
accessories and lifestyle brands Coach, Kate Spade, and Stuart Weitzman
. The order was executed and 500 shares were purchased at $36.96 and five December 16th Call options were sold at the $35.00 strike price for $2.45 per share. The Implied Volatility of these Call options was 39.9 when this transaction was executed and the Delta was 72.5. In addition, there is an upcoming quarterly ex-dividend of $.30 per share (3.2% annual dividend yield) on December 8th which is prior to the options expiration date; so it is included in the potential return-on-investment calculations detailed below.
Tapestry 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:
- +1.4% absolute return (equivalent to +63.9% annualized
return for the next 8 days) if the stock is assigned early (business day
prior to the December 8th, 2022 ex-dividend date); OR
- +2.3%
absolute return (equivalent to +48.6% annualized return over the next 17
days) if the stock is assigned on the December 16th, 2022 options expiration date.
These returns will be achieved as long as Tapestry's
stock price is
above the $35.00 strike price at options expiration. If the stock
declines
below the strike price, the breakeven price of $34.21 per share ($36.96
stock purchase price - $2.45 Call options selling price - $.30
ex-dividend amount)
provides a substantial 7.4% downside breakeven protection below today's
stock purchase
price.
Tapestry Inc. (TPR) -- New Covered Calls Position
The transactions were:
11/30/2022 Bought 500 Tapestry Inc. shares @ $36.96
11/30/2022 Sold 5 TPR 12/16/2022 $35.00 Call options @ $2.45 per share
12/08/2022 Upcoming quarterly ex-dividend of $.30 per share
Two possible overall performance results (including commissions) for this Tapestry Covered Calls position are as follows:
Covered Calls Net Investment: $17,258.35
= ($36.96 - $2.45) * 500 shares + $3.35 commissions
Net Profit Components:
(a) Options Income: +$1,221.65
= ($2.45 * 500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 8th ex-div date): +$0.00; or
(b) Dividend Income (If Tapestry shares assigned at the Dec 16th, 2022 options expiration): +$150.00
= ($.30 dividend per share x 500 shares)
(c) Capital Appreciation (If TPR assigned early on Dec 8th): -$980.00
+($35.00 - $36.96) * 500 shares ;or
(c) Capital Appreciation (If TPR shares assigned at $35.00 strike price at options expiration): -$980.00
+($35.00 - $36.96) * 500 shares
1. Total Net Profit [If options exercised on Dec. 7th (business day prior to the Dec. 8th ex-dividend date)]: +$241.65
= (+$1,221.65 +$0.00 - $980.00); or
2. Total Net Profit (If Tapestry shares assigned at $35.00 strike price at Dec. 16th, 2022 expiration): +$391.65
= (+$1,221.65 + $150.00 - $980.00)
1. Absolute Return [If TPR Call options exercised on business day prior to ex-dividend date]: +1.4%
= +$241.65/$17,258.35
Annualized Return (If options exercised early): +63.9%
= (+$241.65/$17,258.35) * (365/8 days); or
2. Absolute Return (If Tapestry shares assigned at $35.00 strike price on Dec. 16th, 2022 expiration): +2.3%
= +$391.65/$17,285.35
Annualized Return (If Tapestry stock assigned at $35.00 at the Dec. 16, 2022 expiration): +48.6%
= (+$391.65/$17,285.35) *(365/17 days)
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, all nine criteria are met for this Tapestry Inc. Covered Calls position.
