Dupont also has an upcoming ex-dividend date on May 30th (8 days from today) at $.36 per share (2.2% annual dividend yield), so this is included in the potential return-on-investment results detailed below. This Covered Calls position is consistent with my preference when my Overall Market Meter viewpoint is Slightly Bearish to establish in-the-money Covered Calls in low-growth sectors (such as this one in the Materials sector) using my Dividend Capture Strategy. With this strategy it is possible to achieve an attractive annualized return-on-investment result if either the position is assigned on the options expiration date or if it is assigned early (normally on the day prior to the ex-dividend date). Also as preferred, there is no quarterly earnings report prior to the June 2nd expiration date. The approximate probability of assignment was 68.0% when this position was established.
Two potential return-on-investment results are as follows: (a) +1.0% absolute return-on-investment (equivalent to +43.5% annualized roi) for 8 days if this Covered Calls position is assigned early on May 29th, 2023 (the last business day prior to the May 30th ex-dividend date); OR (b) +1.5% absolute return-on-investment (equivalent to +46.0% annualized roi) for 12 days if this Covered Calls position is in-the-money on its June 2nd, 2023 options expiration date.
Dupont De Nemours Inc. (DD) -- New Covered Calls Position Established
The simultaneous buy/write transaction was as follows:
5/22/2023 Bought 300 shares of Dupont @ $66.41 per share.
5/22/2023 Sold 3 DD June 2nd, 2023 $65.00 Call options @ $2.03 per share. The Implied Volatility of these Calls was 23.9 when this position was established.
5/30/2023 Upcoming ex-dividend of $.36 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $19,316.01
= ($66.41 - $2.03) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$606.99
= ($2.03 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Dupont shares assigned at the June 2nd, 2023 expiration): +$108.00
= ($.36 dividend per share x 300 shares)
(c) Capital Appreciation (If Dupont shares assigned early): -$423.00
+($65.00 strike price - $66.41 stock purchase cost) * 300 shares; or
(c) Capital Appreciation (If DD shares assigned at $65.00 strike price at options expiration): -$423.00
+($65.00 - $66.41) * 300 shares
Either outcome would provide a very good annualized-return-on-investment result above 40%. These returns will be achieved as long as the stock is above the $65.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $64.02 ($66.41 -$2.03 -$.36) provides 3.6% downside protection below today's purchase price.
The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a dividend capture strategy. The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved. As shown in the table below, eight of the nine criteria are achieved for this Dupont De Nemours Inc. Covered Calls position.
