Today a Covered Call position was established in the SPDR S&P 500 ETF (ticker symbol SPY) when the Covered Calls Advisor's buy/write net debit limit order of $382.16 was executed at 1:41PM Eastern Time. One hundred shares were purchased at $396.65 and one March 31st, 2023 Call option was sold at $14.49 per share at the $386.00 strike price. The corresponding extrinsic value (i.e. time value) was $3.84 per share [$14.49 Call option premium - ($396.65 stock purchase price - $386.00 strike price)]. The $3.84 time value per share will be profit if the stock remains above the $386.00 strike price and is therefore assigned on the March 31st options expiration date.
There is also an intervening quarterly ex-distribution date on 3/17/2023. The amount of the distribution is not pre-announced so I have included my best guesstimate of $1.45 per share in the two potential return-on-investment results provided below. Note: the actual amount was $1.5062.
Given the Covered Calls Advisor's current "Slightly Bearish" Overall Market Meter sentiment, a moderately in-the-money Covered Calls position was established -- the Delta was 69.9, which closely approximates the probability that the Call option will be in-the-money on the options expiration date.
Some key numbers for this SPDR S&P 500 ETF Covered Call position are:
SPY Covered Call Net Investment: $38,216.67
= ($396.65 - $14.49) x 100 shares + $.67 commission
1. If Assigned Early on the Day Before the March 17th Ex-Distribution Date:
Time Value Profit: $383.33 = $3.84 time value profit per share x 100 shares - $.67 commission
Days Until the March 17th, 2023 Options Expiration: 9
Absolute Return-on-Investment if Assigned Early (on day prior to ex-distribution date): +1.0%
= ($383.33 profit/$38,216.67 net investment)
Annualized Return-on-Investment (If Assigned Early): +40.7%
= ($383.33 profit/$38,216.67 net investment) x (365 days/9 days)
2. If Assigned on the March 31st, 2023 Options Expiration Date:
Time Value Profit: $383.33 = $3.84 time value x 100 shares - $.67 commission
Distribution Income if Assigned on the Options Expiration Date: $150.62 = $1.5062 per share x 100 shares
Total Potential Profit: $533.95 = $383.33 time value profit + $150.62 distribution income
Days Until the March 31st, 2023 Options Expiration: 24
Absolute Return-on-Investment (If Assigned at the 3/31/2023 Expiration): +1.4%
= $533.95/$38,216.67
Annualized Return-on-Investment (If Assigned at the March 31st Expiration): +21.2%
=($533.95/$38,216.67) x (365 days/24 days)
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net
