Established Covered Calls Position in the iShares 20+ Year Treasury Bond ETF

Today a short-duration (9 days) in-the-money Covered Calls position was established in the iShares 20+ Year Treasury Bond ETF (ticker TLT) at the July 7th, 2023 options expiration date and at the $101.00 strike price.  Three hundred TLT shares were purchased at $101.87 per share and three July 7th, 2023 $101.00 Calls were sold at $1.18 per share. The corresponding potential time value profit is $.31 per share [$1.18 Call options premium - ($101.00 strike price - $101.87 ETF purchase price)].  The Delta was 67.5 when this position was established.  In addition to the potential time value profit of $.31 per share, there is an upcoming monthly ex-distribution on July 3rd which I estimate at $.27 per share and which is prior to the July 7th options expiration date.  

As you know, normally I prefer to establish Covered Calls using individual stocks rather than broader indices such as stock-based ETFs.  The reasons for this are described in my prior post entitled "Exploiting Our Covered Calls Investing "Edges"' (see items #2 and #3 in the article here).  This TLT ETF contains U.S. Government Treasury Bonds of 20-and-more years duration and its current 30-day yield is only 3.82%.  Many investors are satisfied with buying-and-holding T-Bonds, but we Covered Calls investors know much better return-on-investment results can be achieved with an informed and disciplined Covered Calls investing approach.  This is true not only for our usual Covered Calls positions using stocks as the underlying equity, but this TLT Covered Calls position demonstrates that it is also even true with Covered Calls with this conservative Treasury Bond ETF (i.e. TLT), whose potential annualized-return-on-investment (aroi) result of +23.1% detailed below greatly exceeds the current 3.82% yield from owning TLT shares.  While I do not intend to change from my approach of almost always establishing my Covered Calls positions using individual stocks as the underlying equity, I admit that I am finding this experiment in establishing a Covered Calls position using the TLT Bond ETF to be a stimulating learning experience.

iShares 20+ Year Treasury Bond ETF (TLT) -- New Covered Calls Position 

The buy/write transaction was as follows:
6/29/2023 Bought 300 iShares 20+ Year Treasury Bond ETF shares at $101.87.

6/29/2023 Sold 3 TLT July 7th, 2023 $101.00 Call options @ $1.18 per share.
7/3/2023 Upcoming ex-distribution estimated at $.27 per share.

The overall performance results (including commissions) if TLT remains in-the-money at options expiration would be as follows:
Covered Calls Net Investment: $30,209.01
= ($101.87 - $1.18) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$351.99
= ($1.18 * 300 shares) - $2.01 commission
(b) Distribution Income [If TLT price is in-the-money (i.e. above the $101.00 strike price) and the position is assigned (i.e. closed out) at options expiration on July 7th]: +$81.00

= $.27 distribution per share x 300 TLT shares

(c) Capital Appreciation (If TLT is above the $101.00 strike price at the July 7th, 2023 options expiration date): -$261.00

= ($101.00 strike price - $101.87 purchase price) * 300 shares

Total Net Profit [If TLT share price is in-of-the-money (i.e. above $101.00 strike price) at options expiration]: +$171.99
= (+$351.99 options income +$81.00 distribution income -$261.00 capital appreciation)

Absolute Return-on-Investment: (If shares are above the $101.00 strike price at the July 7th, 2023 options expiration) : +0.6%

= +$171.99/$30,209.01
Annualized Return-on-Investment: +23.1%
= (+$171.99/$30,209.01) * (365/9 days)

Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net