Both Covered Calls positions were established using my Dividend Capture Strategy. Bristol-Myers Squibb Co. goes ex-dividend at $.57 per share (3.6% annual dividend yield) on July 6th so the potential for capturing this dividend is included in the potential return-on-investment results detailed below. The potential time value profit was $.46 per share = [$62.50 strike price - ($63.75 stock purchase price - $1.71 Call options price)]. As preferred, there is no intervening earnings report prior to the options expiration date. As I also prefer, the Implied Volatility of the Bristol-Myers Calls was 16.1 which is slightly above that of VIX which is currently 14.6. There is a 67.5% probability that the Calls will be above the $62.50 strike price at options expiration.
Bristol-Myers' FY2022 EPS was $7.70 and it is expected to increase to $8.04 this fiscal year and they have exceeded quarterly earnings estimates in each of their last 4 quarters. This positive trend should continue to benefit the stock price which is reflected in Wall Street analysts' current average target price at $79.70 (+25.0% above today's purchase price). Bristol-Myers appears in both my Quantitative Value and Magic Formula stock screeners.
The second Covered Calls position is in JPMorgan Chase & Co. The potential time value profit was $1.10 per share = [$135.00 strike price - ($138.28 stock purchase price - $4.38 Call options price)]. JPMorgan stock goes ex-dividend on July 5th at $1.00 per share (2.9% annual dividend yield), so the potential for capturing this dividend is included in the potential return-on-investment results detailed below. Their Q2 2023 earnings report will be before market open on the July 14th, 2023 options expiration date, so because of the usual stock price volatility on the earnings reporting date, there is a strong likelihood that I will close out this position prior to July 14th. The Implied Volatility of the Call options was 21.5 and the Delta was 70.4 which approximates the probability of the Call option would be in-the-money at market close on the July 14th options expiration date.
As detailed below, the potential return-on-investment results for these Covered Calls positions are:
- Bristol-Myers Squibb Co.: +0.7% absolute return (equivalent to +33.8% annualized return-on-investment for the next 8 days) if the stock is assigned early (last trading day prior to the July 6th ex-dividend date); OR (2) +1.7% absolute return (equivalent to +25.2% annualized return over the next 24 days) if the stock is assigned on its July 21st options expiration date.
- JPMorgan Chase & Co.: +0.8% absolute return (equivalent to +42.9% annualized return-on-investment for the next 7 days) if the stock is assigned early (last trading day prior to the July 5th ex-dividend date); OR (2) +1.6% absolute return (equivalent to +33.6% annualized return over the next 17 days) if the stock is assigned on its July 14th options expiration date.
1. Bristol-Myers Squibb Co. (BMY) -- New Covered Calls Position
The simultaneous buy/write transaction was:
6/28/2023 Bought 300 Bristol-Myers Squibb Co. shares @ $63.75 per share.
6/28/2023 Sold 3 BMY 7/21/2023 $62.50 Call options @ $1.71 per share.
7/6/2023 Upcoming quarterly ex-dividend of $.57 per share
Two possible overall performance results (including commissions) for this Bristol-Myers Squibb Co. Covered Calls position are as follows:
Covered Calls Net Investment: $18,614.01
= ($63.75 - $1.71) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$513.00
= ($1.71 * 300 shares)
(b) Dividend Income (If option exercised early on July 5th, 2023, the business day prior to the July 6th ex-div date): +$0.00; or
(b) Dividend Income (If BMY stock assigned at its July 21st, 2023 options expiration date): +$171.00
= ($.57 dividend per share x 300 shares)
+($62.50 - $63.75) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $62.50 strike price at options expiration): -$375.00
+($62.50 - $63.75) * 300 shares
Either outcome provides a satisfactory annualized return-on-investment result for this Bristol-Myers investment. These returns will be achieved as long as the stock is above the $62.50 strike price on the options expiration date. However, if the stock declines below the strike price, the breakeven price of $61.47 ($63.75 -$1.71 -$.57) provides 3.6% downside protection below today's stock purchase price.
2. JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
6/28/2023 Bought 300 JPMorgan Chase & Co. shares @ $138.28
7/05/2023 Upcoming quarterly ex-dividend at $1.00 per share.
Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Net Investment: $40,172.01
= ($138.28 - $4.38) * 300 shares + $2.01 commission
Net Profit:
(a) Options Income: +$1,311.99
= ($4.38 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on July 3rd, the last business day prior to the July 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the January 14th, 2023 options expiration date): +$300.00
= ($1.00 dividend per share x 300 shares)
+($135.00 -$138.28) * 300 shares; or
(c) Capital Appreciation (If JPM assigned at $135.00 strike price at expiration): -$984.00
+($135.00-$138.28) * 300 shares
1. Total Net Profit [If option exercised on the last business day prior to the July 5th ex-dividend date)]: +$327.99
Best Wishes and Godspeed,
Jeff Partlow
The Covered Calls Advisor
partlow@cox.net
