Established Covered Calls in Morgan Stanley

Today a Covered Calls position was established in Morgan Stanley (ticker symbol MS) when 200 shares were purchased at $93.24 and 2 February 10th, 2023 Call options were sold at $4.22 per share at the $90.00 strike price.  The net debit limit order at $89.02 was executed, so the time value was $.98 per share [$4.22 Call options premium - ($93.24 stock purchase price - $90.00 strike price)]. There is an upcoming quarterly ex-dividend of $.775 (annual dividend yield of 3.3%) on Monday, January 30th., so two potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the February 10th, 2023 options expiration date.  Their Q4 2022 earnings were reported two days ago, so there will be no new earnings report prior to the options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of 71.4. 

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

•  +1.1% absolute return (equivalent to +36.3% annualized return for the next 11 days) if the stock is assigned early (on the last business day prior to the January 30th ex-dividend date); OR 

• +2.0% absolute return (equivalent to +31.2% annualized return over the next 23 days) if the stock is assigned on the February 10th options expiration date.

Morgan Stanley (MS) -- New Covered Calls Position
The buy/write transaction was:
01/19/2023 Bought 200 Morgan Stanley shares @ $93.24
01/19/2023 Sold 2 Morgan Stanley 2/10/2023 $90.00 Call options @ $4.22
Note: the Implied Volatility of the Call options was 25.6 when this buy/write transaction was executed.
1/30/2023 Upcoming quarterly ex-dividend of $.775 per share

Two possible overall performance results (including commissions) for this Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $17,805.34
= ($93.24 - $4.22) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$842.66
= ($4.22 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Friday, January 27th, the last business day prior to the January 30th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at the Feb. 10th, 2023 expiration): +$155         = ($.775 dividend per share x 200 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on January 27th): -$648.00
+($90.00 - $93.24) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $90.00 strike price at the Feb. 10th options expiration): -$648.00
+($90.00 - $93.24) * 200 shares

1. Total Net Profit [If option exercised early on the last business day prior to the Jan. 30th ex-dividend date)]: +$194.66

= (+$842.66 options income +$0.00 dividend income -$648.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $90.00 strike price at the Feb. 10th, 2023 expiration): +$349.66

= (+$842.66 +$155.00 -$648.00)

1. Absolute Return-on-Investment (If option exercised early on Jan. 27th): +1.1%

= +$194.66/$17,805.34

Annualized Return-on-Investment: +36.3%

= (+$194.66/$17,805.34) * (365/11 days); or

2. Absolute Return-on-Investment (If Morgan Stanley shares assigned at $90.00 at the Feb. 10th, 2023 options expiration): +2.0%

= +$349.66/$17,805.34

Annualized Return-on-Investment (If Morgan Stanley shares assigned at the 2/10/2023 expiration): +31.2%

= (+$349.66/$17,805.34) * (365/23 days)

Either outcome would provide an attractive return-on-investment result for this Morgan Stanley investment.  These returns will be achieved as long as the stock is above the $90.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $88.245 ($93.24 -$4.22 -$.775) provides 5.4% 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 Morgan Stanley position, all nine criteria were met.