Covered Calls Established in Taiwan Semiconductor Manufacturing Co. Ltd.

During the final hour of trading today, a Covered Calls position was established in Taiwan Semiconductor Manufacturing Co. Ltd. (ticker TSM) with a March 24th, 2023 options expiration date.   A buy/write transaction entered at a net debit of $84.04 was executed by purchasing 200 shares of TSM at $89.01 and simultaneously selling two March 24th, 2023 Call options at the $85.00 strike price at $4.97 per share. The potential time value profit when this Covered Calls position was established was $.96 per share = [$4.97 Call options price - ($89.01 stock price - $85.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 74.9 which approximates a probability of 74.9% that the Call options will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date. The Implied Volatility of these Calls was 33.7 when this transaction was executed. In addition to the $.96 potential time value profit described above, there is an upcoming ex-dividend one week from today on March 16th of $.4488 per share (2.0% annual dividend yield) which is included in the two potential return-on-investment results shown below: 

•  +1.1% absolute return (equivalent to +59.1% annualized return for the next 7 days) if the stock is assigned early (on the last business day prior to the March 16th, 2023 ex-dividend date); OR 

• +1.7% absolute return (equivalent to +38.1% annualized return over the next 16 days) if the stock is assigned on the March 24th, 2023 options expiration date.

Taiwan Semiconductor Manufacturing Co. Ltd. -- New Covered Calls Position Established

The net debit buy/write limit order was transacted as follows:
3/9/2023 Bought 200 Taiwan Semi shares @ $89.01
3/9/2023 Sold 2 TSM March 24th, 2023 $85.00 Call options @ $4.97 per share.
Note: as is often the case, these Call options were transacted below the $5.00 midpoint of the $4.95/$5.05 bid/ask spread.
3/16/2023 Upcoming Taiwan Semiconductor ex-dividend of $.4488 per share.

Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Calls Net Investment: $16,809.34
= ($89.01 - $4.97) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$992.66
= ($4.97 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on March 15th, the last business day prior to the March 16th ex-div date): +$0.00; or
(b) Dividend Income (If TSM stock assigned at the March 24th, 2023 expiration): $89.76
= ($.4488 dividend per share x 200 shares)
(c) Capital Appreciation (If Taiwan Semiconductor Call options assigned early on March 24th): -$802.00
+($85.00 strike price - $89.01 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $85.00 strike price at the March 24th options expiration): -$802.00
+($85.00 strike price - $89.01) * 200 shares

1. Total Net Profit [If option exercised early on the last business day prior to the March 16th ex-dividend date)]: +$190.66

= (+$992.66 options income +$0.00 dividend income -$802.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $85.00 strike price at the March 24th, 2023 expiration): +$280.42

= (+$992.66 options income +$89.76 dividend income -$802.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on March 16th): +1.1%

= +$190.66/$16,809.34

Annualized Return-on-Investment: +59.1%

= (+$190.66/$16,809.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Taiwan Semi shares assigned at the $85.00 strike and at the March 24th, 2023 options expiration date): +1.7%

= +$280.42/$16,809.34

Annualized Return-on-Investment (If TSM shares assigned at the 3/24/2023 expiration date): +38.1%

= (+$280.42/$16,809.34) * (365/16 days)

Either outcome provides a good return-on-investment result for this Taiwan Semiconductor Manufacturing Co. Ltd. investment.  These returns will be achieved as long as the stock is above the $85.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $83.5912 ($89.01 -$4.97 -$.4488) provides a 6.1% 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 Taiwan Semiconductor position, all nine criteria were met.