Established Covered Call in Union Pacific Corporation

With less than 5 minutes in today's trading, a Covered Call position was established in the Union Pacific Corporation (ticker symbol UNP) at a net debit buy/write limit order of $186.44 per share.  One hundred shares were purchased at $193.73 and one March 3rd, 2023 Call option was sold at $7.29 per share at the $187.50 strike price.  This strike price is 3.3% in-the-money which is consistent with my guideline when establishing Covered Calls when my Overall Market Meter indicator is Slightly Bearish, which is to sell at strike prices between 2.0% and 5.0% in-the-money. This buy/write transaction occurred at a Delta of 77.3 which approximates the probability of 77.3% that the Call option will be in-the-money and therefore assigned on the options expiration date.   

The potential time value profit is $1.06 per share [$7.29 Call option premium - ($193.73 stock purchase price - $187.50 strike price)].  In addition to this $1.06 per share time value profit potential, there is an upcoming quarterly ex-dividend of $1.30 per share (annual dividend yield of 2.7%) on next Monday (February 27th, 2023) which is included in the potential return-on-investment results detailed below.

Two potential return-on-investment results are: 

•  +0.6% absolute return (equivalent to +51.5% annualized return for the next 4 days) if the stock is assigned early this Friday, February 24th which is the last business day prior to Monday's February 27th, 2023 ex-dividend date); OR 

• +1.3% absolute return (equivalent to +41.9% annualized return over the next 11 days) if the stock is assigned on the March 3rd, 2023 options expiration date.

Union Pacific Corporation (UNP) -- New Covered Call Position

The buy/write transaction was:
2/21/2023 Bought 100 Union Pacific Corp. shares @ $193.73
2/21/2023 Sold 1 Union Pacific 3/3/2023 $187.50 Call option @ $7.29 per share
Note: the Implied Volatility of the Call options was 24.0 when this buy/write transaction was executed.
2/27/2023 Upcoming quarterly ex-dividend of $1.30 per share

Two possible overall performance results (including commissions) for this Covered Call position are as follows:
Covered Call Net Investment: $18,644.67
= ($193.73 - $7.29) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$728.33
= ($7.29 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on Feb. 24th, the last business day prior to Monday's February 27th ex-div date): +$0.00; or
(b) Dividend Income (If Union Pacific stock assigned at the March 3rd, 2023 expiration): $130.00
= ($1.30 dividend per share x 100 shares)
(c) Capital Appreciation (If UNP Call option is assigned early on Feb. 24th): -$623.00
+($187.50 strike price - $193.73 stock price) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $187.50 strike price at the March 3rd options expiration): -$623.00
+($187.50 - $193.73) * 100 shares

1. Total Net Profit [If option exercised early this Friday (February 24th)]: +$105.33

= (+$728.33 options income +$0.00 dividend income -$623.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $187.50 strike price at the March 3rd, 2023 expiration): +$235.33

= (+$728.33 options income +$130.00 dividend income -$623.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on Feb 24th): +0.6%

= +$105.33/$18,644.67

Annualized Return-on-Investment: +51.5%

= (+$105.33/$18,644.6) * (365/4 days); or

2. Absolute Return-on-Investment (If Union Pacific shares assigned at $187.50 at the March 3rd, 2023 options expiration date): +1.3%

= +$235.33/$18,644.67

Annualized Return-on-Investment (If UNP shares assigned at the 3/3/2023 options expiration date): +41.9%

= (+$235.33/$18,644.67) * (365/11 days)