Morgan Stanley goes ex-dividend this Friday at $.775 per share (3.5% annual dividend yield) which is exactly one week prior to the May 5th options expiration date; so the potential for capturing this dividend is included in the potential return-on-investment results detailed below. As preferred, the Implied Volatility of these Morgan Stanley Calls was 23.2 which is above that of VIX which is currently 19.6.
The position in Uber Technologies is a continuation of a regular bi-weekly Covered Calls position. This position is more risky than others since there is an intervening earnings report on May 2nd prior to the May 5th expiration date. However, I am sufficiently confident that Uber will beat analysts' EPS estimates this quarter and that the very high 72.8 Implied Volatility in these options (which provides a very attractive Call options premium income) is worth the elevated risk associated with the uncertainty related to this upcoming earnings report. The time value was $.99 per share = [$28.50 strike price - ($29.60 stock purchase price - $2.09 Call options price)] when this position was established.
As detailed below, the potential return-on-investment results for these Covered Calls positions are:
- For Morgan Stanley: +0.5% absolute return (equivalent to +56.6% annualized return-on-investment for the next 3 days) if the stock is assigned early (last trading day prior to the April 28th ex-dividend date); OR (2) +1.4% absolute return (equivalent to +45.8% annualized return over the next 11 days) if the stock is assigned on its May 5th options expiration date.
- For Uber Technologies Inc.: +3.6% absolute return (equivalent to +118.6% annualized return-on-investment for the next 11 days) if the stock is assigned on the May 5th, 2023 options expiration date.
1. Morgan Stanley (MS) -- New Covered Calls Position
The buy/write transaction was:
4/25/2023 Bought 300 Morgan Stanley shares @ $87.914/25/2023 Sold 3 Morgan Stanley 5/5/2023 $85.00 Call options @ $3.31 per share.
4/28/2023 Upcoming quarterly ex-dividend of $.775 per share
Two possible overall performance results (including commissions) for this Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $25,382.01
= ($87.91 - $3.31) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$990.99
= ($3.31 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on Thursday, April 27th, the last business day prior to the April 28th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at the May 5th, 2023 expiration): $232.50 = ($.775 dividend per share x 300 shares)
+($85.00 - $87.91) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $85.00 strike price at the May 5th options expiration): -$873.00
+($85.00 - $87.91) * 300 shares
Either outcome would provide an attractive return-on-investment result for this Morgan Stanley 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 $83.825 ($87.91 -$3.31 -$.775) provides 4.6% 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 Morgan Stanley position, all nine criteria were met.
2. Uber Technologies Inc. (UBER) -- New Covered Calls Position
The net debit buy/write limit order was executed as follows:
4/25/2023 Bought 500 shares of Uber Technologies Inc. stock @ $29.60 per share
4/25/2023 Sold 5 Uber May 5th, 2023 $28.50 Call options @ $2.09 per share
A possible overall performance result (including commissions) if this position is assigned on its May 5th options expiration date is follows:
Covered Calls Net Investment: $13,758.35
= ($29.60 - $2.09) * 500 shares + $3.35 commission
Net Profit Components:
(a) Options Income: +$1,041.65
= ($2.09 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $28.50 strike price and therefore assigned at the May 5th options expiration): -$550.00
= ($28.50 -$29.60) * 500 shares
Potential Total Net Profit (If assigned at expiration): +$491.65
= (+$1,041.65 options income +$0.00 dividend income -$550.00 capital appreciation)
Potential Absolute Return-on-Investment: +3.6%
= +$491.65/$13,758.35
Potential Equivalent Annualized-Return-on-Investment: +118.6%
= (+$491.65/$13,758.35) * (365/11 days)
