Established Covered Calls in Charles Schwab Corporation

Today a Covered Calls position was established in the Charles Schwab Corporation (ticker symbol SCHW) at a net debit limit order of $44.56.  Four hundred shares were purchased at $48.33 and 4 May 19th, 2023 Call options were sold at $3.77 per share at the $45.00 strike price.  The potential time value profit is $.44 per share [$3.77 Call options premium - ($48.33 stock purchase price - $45.00 strike price)].  In addition to this $.44 time value profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.25 (annual dividend yield of  2.1%) in 3 days on May 11th 9th, 2023.  So, the two potential return-on-investment results detailed below are: (1) the possibility of early assignment since the May 11th ex-dividend is prior to the May 19th, 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.  This buy/write transaction occurred at a Delta of 79.6 which approximates the probability that the Call options will be in-the-money and therefore assigned on the options expiration date.  Wall Street analysts' current average target price is $66.92 (+38.5% above today's purchase price). 

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

•  +1.0% absolute return (equivalent to +118.3% annualized return for the next 3 days) if the stock is assigned early (on the last business day prior to the May 11th, 2023 ex-dividend date); OR 

• +1.5% absolute return (equivalent to +46.6% annualized return over the next 12 days) if the stock is assigned on the May 19th options expiration date.

Charles Schwab Corporation (SCHW) -- New Covered Calls Position

The buy/write transaction was:
5/8/2023 Bought 400 Charles Schwab shares @ $48.33
5/8/2023 Sold 4 SCHW 5/19/2023 $45.00 Call options @ $3.77 per share
Note: the Implied Volatility of the Call options was 47.3 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 only 17.3).
5/11/2023 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: $17,826.68
= ($48.33 - $3.77) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,505.32
= ($3.77 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on May 10th, the last business day prior to the May 11th ex-div date): +$0.00; or
(b) Dividend Income (If Schwab stock assigned at the May 19th, 2023 expiration): $100.00
= ($.25 dividend per share x 400 shares)
(c) Capital Appreciation (If Schwab Call options assigned early on May 10th): -$1,332.00
+($45.00 strike price - $48.33 stock price) * 400 shares; or
(c) Capital Appreciation (If shares assigned at $45.00 strike price at the May 19th options expiration): -$1,332.00
+($45.00 - $48.33) * 400 shares

1. Total Net Profit [If option exercised early on the last business day prior to the May 11th ex-dividend date)]: +$173.32

= (+$1,505.32 options income +$0.00 dividend income -$1,332.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $45.00 strike price at the May 19th, 2023 expiration): +$273.32

= (+$1,505.32 options income +$100.00 dividend income -$1,332.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised early on May 11th): +1.0%

= +$173.32/$17,826.68

Annualized Return-on-Investment: +118.3%

= (+$173.32/$17,826.68) * (365/3 days); or

2. Absolute Return-on-Investment (If Charles Schwab shares assigned at $45.00 at the May 19th, 2023 options expiration date): +1.5%

= +$273.32/$17,826.68

Annualized Return-on-Investment (If shares assigned at the 5/19/2023 expiration date): +46.6%

= (+$273.32/$17,826.68) * (365/12 days)

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.