Established Covered Calls Position in Exxon Mobil Corporation

Early in this morning's trading, I entered a Covered Calls simultaneous buy/write net debit limit order in Exxon Mobil Corporation (ticker XOM) for the February 24th, 2023 expiration and at the $108.00 strike price and at a net debit limit price of $106.80 per share.  About 15 minutes later, the order was executed and 200 shares were purchased at $111.85 and two 2/24/2023 Call options were sold at the $108.00 strike price for $5.05 per share.  So, the potential time value profit from the Call options is $1.20 per share [$108.00 strike price - ($111.85 stock purchase price - $5.05 Call options price)], and the Implied Volatility of these Call options was 27.4 when this transaction was executed.  

In addition to the potential time value profit of $1.20 per share, there is an upcoming quarterly ex-dividend of $.91 per share (3.3% annual dividend yield) on February 13th which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established this morning it had a probability of assignment on the options expiration date of 71.0%. 

Exxon Mobil Corp. meets all five criteria I am currently using for a company to be considered as a candidate for investment.

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

•  +1.1% absolute return (equivalent to +59.3% annualized return for the next 7 days) if the stock is assigned early (the last business day prior to the Feb. 13th, 2023 ex-dividend date); OR 

• +2.0% absolute return (equivalent to +37.8% annualized return over the next 19 days) if the stock is assigned on the February 24th, 2023 options expiration date.

These returns will be achieved as long as Exxon Mobil's stock price is above the $108.00 strike price when assigned.  If the stock declines below the strike price, the breakeven price of $105.89 per share ($111.85 stock purchase price - $5.05 Call options selling price - $.91 ex-dividend amount) provides a 5.3% downside breakeven protection if assigned on the options expiration date.
 

Exxon Mobil Corporation (XOM) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.20 remaining in the short Call options decays substantially (down to approximately $.15 or less) before market close this Friday, February 10th, 2023 (the last business day prior to next Monday's ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Exxon Mobil shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +59.3% annualized-return-on-investment (aroi) exceeds the +37.8% aroi that would be achieved if the assignment occurred instead on the February 24th options expiration date.

The simultaneous buy/write transaction was:
2/6/2023 Bought 200 Exxon Mobil shares @ $111.85
2/6/2023 Sold 2 Exxon Mobil February 24th, 2023 $108.00 Call options @ $5.05 per share
2/13/2023 Upcoming Exxon quarterly ex-dividend at $.91 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Covered Calls position are as follows:
Covered Calls Net Investment: $21,361.34
= ($111.85 - $5.05) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,008.66
= ($5.05 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Friday, Feb. 10th, the last business day prior to the February 13th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil's shares assigned at the February 24th, 2023 options expiration date): +$182.00
= ($.91 dividend per share x 200 shares)

(c) Capital Appreciation (If Exxon Mobil's stock assigned early): -$770.00
+($108.00 -$111.85) * 200 shares; or
(c) Capital Appreciation (If Exxon Mobil shares assigned at $108.00 strike price at options expiration): -$770.00
+($108.00 -$111.85) * 200 shares

1. Total Net Profit (If option exercised early): +$238.66

= (+$1,008.66 options income +$0.00 dividend income -$770.00 capital appreciation); or

2. Total Net Profit (If Exxon Mobil stock assigned at $108.00 at the Feb. 24th, 2023 expiration): +$420.66

= (+$1,008.66 options income +$182.00 dividend income -$770.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on the last business day prior to the 2/13/2023 ex-dividend date): +1.1%

= +$238.66/$21,361.34

Annualized Return-on-Investment (If option exercised early): +59.3%

= (+$238.66/$21,361.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Exxon Mobil stock assigned at $108.00 at the Feb. 24th options expiration date): +2.0%

= +$420.66/$21,361.34

Annualized Return-on-Investment (If Exxon Mobil shares assigned at $108.00 at the 2/24/2023 options expiration date): +37.8%

= (+$420.66/$21,361.34) *(365/19 days)

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, all nine criteria are achieved for this Exxon Mobil Corp. position.