Devon Energy goes ex-dividend at $1.35 per share (8.0% annual dividend yield) on December 9th which is one week prior to the December 16th options expiration date, so the potential for capturing this dividend is included in the potential return-on-investment results detailed below. As preferred, there is no intervening earnings report prior to the options expiration date. As I also prefer, the Implied Volatility of the Devon Calls was 48.0 which is substantially above that of VIX which is currently 20.8. This provides a very good options premium received (and therefore also an attractive potential annualized return-on-investment) from selling these Devon Energy Call options.
Devon's trailing twelve months P/E ratio is only 7.2 and it should continue to decline based on next quarter's EPS estimated to be 49.6% higher than the same quarter last year. Devon has exceeded quarterly earnings estimates in each of its last 4 quarters. This positive trend should continue to benefit the stock price which is reflected in Wall Street analysts' current average target price at $80.44 (+19.6% above today's purchase price).
The second Covered Calls position is in Tyson Foods Inc. The time value was $.60 per share = [$65.00 strike price - ($66.99 stock purchase price - $2.59 Call options price)]. Tyson Foods goes ex-dividend next Wednesday at $.48 per share (2.9% annual dividend yield), so the potential for capturing this dividend is included in the potential return-on-investment results detailed below. There is no earnings report prior to the December 16th options expiration date. The Implied Volatility of the Call options was 21.4 and the Delta was 70.2 which approximates the probability of the Call option being in-the-money on the Dec. 16th options expiration date. If Tyson Foods closes in-the-money on the December 16th options expiration date, then the maximum return-on-investment result would be achieved for this position.
As detailed below, the potential return-on-investment results for these Covered Calls positions are:
- For Devon Energy: +2.2% absolute return (equivalent to +49.3% annualized return-on-investment for the next 16 days) if the stock is assigned early (last trading day prior to the December 9th ex-dividend date); OR (2) +4.4% absolute return (equivalent to +66.2% annualized return over the next 24 days) if the stock is assigned on its Dec. 16th options expiration date.
- For Tyson Foods Inc.: +1.7% absolute return (equivalent to +25.3% annualized return-on-investment for the next 24 days) if the stock is assigned on the December 16th, 2022 options expiration date.
11/23/2022 Bought 300 Devon Energy shares @ $67.27 each
11/23/2022 Sold 3 DVN 12/16/2022 $63.00 Call options @ $5.61 per share
12/9/2022 Upcoming quarterly ex-dividend of $1.35 per share
Two possible overall performance results (including commissions) for this Devon Covered Calls position are as follows:
Covered Calls Net Investment: $18,500.01
= ($67.27 - $5.61) * 300 shares + $2.01 commission
Net Profit:
(a) Options Income: +$1,680.99
= ($5.61 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on December 8th, 2022 the business day prior to the Dec. 9th ex-div date): +$0.00; or
(b) Dividend Income (If Devon shares assigned at December 16th, 2022 expiration): +$405.00
= ($1.35 dividend per share x 300 shares)
(c) Capital Appreciation (If Devon shares assigned early): -$1,281.00
+($63.00 - $67.27) * 300 shares; or
(c) Capital Appreciation (If Devon shares assigned at $63.00 strike price at expiration): -$1,281.00
+($63.00 - $67.27) * 300 shares
1. Total Net Profit [If option exercised on Dec. 8th (business day prior to the Dec. 9th, 2022 ex-dividend date)]: +$399.99
Either outcome provides a very good return-on-investment result for this investment. These returns will be achieved as long as the stock is above the $63.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $60.31 ($67.27 -$5.61 -$1.35) provides 10.3% 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 below, in this case all nine criteria are achieved for this Devon Energy Covered Calls position.
2. Tyson Foods Inc. (TSN) -- New Covered Calls Position
The simultaneous buy/write transaction was:
11/23/2022 Sold 2 Tyson Foods 12/16/2022 $65.00 Call options @ $2.59
11/30/2022 Upcoming quarterly ex-dividend of $.48 per share
A possible overall performance result (including commissions) for this Tyson Foods Covered Calls position is as follows:
Covered Calls Net Investment: $12,881.34
= ($66.99 - $2.59) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$516.66
= ($2.59 * 200 shares) - $1.34 commission
(b) Dividend Income (If Tyson Foods stock assigned at Dec. 16th, 2022 options expiration): +$96.00
= ($.48 dividend per share x 200 shares)
+($65.00 - $66.99) * 200 shares
