The potential time value profit is $.72 per share [$3.70 Call options premium - ($76.98 stock purchase price - $74.00 strike price)]. In addition to this $.72 time value profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.25 (annual dividend yield of 1.3%) on February 9th, 2023. So, the two potential return-on-investment results detailed below are: (1) the possibility of early assignment since the Feb. 9th ex-dividend is prior to the February 17th, 2023 options expiration date; and (2) the possibility that this Covered Calls position is in-the-money (and therefore assigned) on the options expiration date. The $.25 dividend is a 25% increase above the quarterly dividend level during the same quarter last year.
Schwab's Q4 2022 earnings report two weeks ago included +16.8% revenue and +24.4% earnings per share increases compared with the same quarter last year. Their full fiscal year 2022 EPS was $3.93, so at today's stock purchase price of $76.98, the FY2022 P/E Ratio is 19.6 and analysts' estimates for FY2023 are for a continuing increase in earnings such that their P/E Ratio would decrease to 17.8. Also, Wall Street analysts' average target price is $92.83 (+20.6% above today's purchase price).
As detailed below, two potential return-on-investment results are:
- +1.0% absolute return (equivalent to +50.8% annualized return for the next 7 days) if the stock is assigned early (on the last business day prior to the February 9th, 2023 ex-dividend date); OR
- +1.3% absolute return (equivalent to +30.0% annualized return over the next 16 days) if the stock is assigned on the February 17th options expiration date.
Charles Schwab Corporation (SCHW) -- New Covered Calls Position
2/2/2023 Bought 200 Charles Schwab shares @ $76.98
2/2/2023 Sold 2 SCHW 2/17/2023 $74.00 Call options @ $3.70 per share
Note: the Implied Volatility of the Call options was 28.3 when this buy/write transaction was executed. As preferred, this exceeds the Implied Volatility of a comparable Delta for a SPY Covered Calls position (whose IV is currently 21.8).
2/9/2023 Upcoming quarterly ex-dividend of $.25 per share
Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Calls Net Investment: $14,657.34
= ($76.98 - $3.70) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$738.66
= ($3.70 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Feb. 8th, the last business day prior to the February 9th ex-div date): +$0.00; or
(b) Dividend Income (If Schwab stock assigned at the Feb. 17th, 2023 expiration): $50.00
= ($.25 dividend per share x 200 shares)
(c) Capital Appreciation (If Schwab Call options assigned early on Feb. 8th): -$596.00
+($74.00 strike price - $76.98 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $74.00 strike price at the Feb.17th options expiration): -$596.00
+($74.00 - $76.98) * 200 shares
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 Charles Schwab Corp. position, all nine criteria were met.
