Established Covered Calls Position in Medtronic PLC Using the Dividend Capture Strategy

This afternoon, a Covered Calls position was established in Medtronic PLC (ticker symbol MDT) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $79.84 and 2 December 30th, 2022 Call options were sold at $2.46 at the $78.00 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 68.1 which closely approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there is an upcoming ex-dividend of $.68 per share one week from today on December 20th which provides an annual dividend yield of 3.4% at the current stock price.  Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the Dec. 20th options expiration date.

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

•  +0.8% absolute return (equivalent to +41.8% annualized return-on-investment for the next 7 days) if the stock is assigned early (business day prior to the December 20th ex-dividend date); OR 

• +1.7% absolute return (equivalent to +34.1% annualized return over the next 18 days) if the stock is assigned on the December 30th, 2022 options expiration date. 
  

Medtronic PLC (MDT) -- New Covered Calls Position
The buy/write transaction was:
12/13/2022 Bought 200 Medtronic PLC shares @ $79.84
12/13/2022 Sold 2 MDT 12/30/2022 $78.00 Call options @ $2.46
Note 1: the Implied Volatility of the Calls was 20.6 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.62 per share = [$2.46 Call options premium - ($79.84 stock price - $78.00 strike price)]
12/20/2022 Upcoming quarterly ex-dividend of $.68 per share

Two possible overall performance results (including commissions) for this Medtronic Covered Calls position are as follows:
Covered Calls Net Investment: $15,477.34
= ($79.84 - $2.46) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$492.00
= ($2.46 * 200 shares)
(b) Dividend Income (If option exercised early on Dec. 19th, the business day prior to the Dec. 20th ex-div date): +$0.00; or
(b) Dividend Income (If Medtronic stock assigned at December 30th, 2022 expiration): +$136.00
= ($.68 dividend per share x 200 shares)

(c) Capital Appreciation (If Medtronic Call options assigned early on Dec. 19th): -$368.00
+($78.00 - $79.84) * 200 shares; or
(c) Capital Appreciation (If MDT shares assigned at $78.00 strike price at options expiration): -$368.00
+($78.00 - $79.84) * 200 shares

1. Total Net Profit (If option exercised early): +$124.00

= (+$492.00 options income +$0.00 dividend income -$368.00 capital appreciation); or

2. Total Net Profit (If Medtronic shares assigned at $78.00 strike price at the Dec. 20th, 2022 options expiration date): +$260.00

= (+$492.00 +$136.00 dividend income -$368.00)

1. Absolute Return-on-Investment (If two MDT Call options exercised early on December 19th): +0.8%

= +$124.00/$15,477.34

Annualized Return-on-Investment (If options assigned early): +41.8%

= (+$124.00/$15,477.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Medtronic shares assigned at $78.00 at Dec. 30th options expiration): +1.7%

= +$260.00/$15,477.34

Annualized Return-on-Investment (If MDT shares assigned at $78.00 at the Dec. 30th, 2022 options expiration): +34.1%
= (+$260.00/$15,477.34) * (365/18 days)

Either outcome provides an attractive return-on-investment result for this Medtronic investment.  These returns will be achieved as long as the stock is above the $78.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $76.70 ($79.84 -$2.46 -$.68) provides 3.9% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Medtronic position, eight criteria were met.