At today's purchase price, the upcoming ex-dividend of $1.03 on August 10th has a 2.1% annualized dividend yield. The Implied Volatility of the Call options was 16.9 which (as preferred by the Covered Calls Advisor) is above the current 13.6 of the S&P 500 Volatility Index (i.e. VIX) and the Delta was 68.0 which approximates a 68.0% probability that this position will be in-the-money on the 8/18/2023 options expiration date.
This relatively short-term (only 19 days until options expiration) position is established to take advantage of the potential to achieve a satisfactory annualized return-on-investment in a position that meets eight of the nine criteria of the Covered Calls Advisor's Dividend Capture Strategy (see table below at the end of this post).
As detailed below, two potential return-on-investment results are:
- +0.8% absolute return (equivalent to +28.5% annualized return for the next 10 days) if the stock is assigned early on the last business day prior to the August 10th ex-dividend date); OR
- +1.3% absolute return (equivalent to +25.5% annualized return over the next 19 days) if the stock is assigned on the August 18th options expiration date.
Honeywell International Inc. (HON) -- New Covered Calls Position
7/31/2023 Bought 200 Honeywell shares @ $193.51
7/31/2023 Sold 2 Honeywell 8/18/2023 $190.00 Call options @ $4.99
8/10/2023 Upcoming quarterly ex-dividend of $1.03 per share
Two possible overall performance results (including commissions) for this Honeywell Covered Calls position are as follows:
Covered Calls Cost Basis: $37,705.34
= ($193.51 - $4.99) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$996.66
= ($4.99 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on August 9th, the last business day prior to the August 10th ex-div date): +$0.00; or
(b) Dividend Income (If Honeywell stock assigned at the August 18th, 2023 options expiration date, in which case the $1.03 dividend is captured): +$206.00
= ($1.03 dividend per share x 200 shares)
(c) Capital Appreciation (If HON Call options assigned early on 8/9/2023): -$702.00
+($190.00 - $193.51) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $190.00 strike price at the 8/18/2023 options expiration date): -$715.00
+($190.00 - $193.51) * 200 shares
+($190.00 - $193.51) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $190.00 strike price at the 8/18/2023 options expiration date): -$715.00
+($190.00 - $193.51) * 200 shares
1. Total Net Profit [If option exercised on 8/9/2023 (business day prior to the 8/10/2023 ex-dividend date)]: +$294.66
= (+$996.66 options income +$0.00 dividend income -$702.00 capital appreciation); or
2. Total Net Profit (If Honeywell shares assigned at $190.00 on the August 18th, 2023 options expiration date): +$500.66
= (+$996.66 +$206.00 -$702.00)
1. Absolute Return-on-Investment [If option exercised on Aug. 9th (business day prior to the ex-dividend date)]: +0.8%
= +$294.66/$37,705.34
Annualized Return-on-Investment (If option exercised early): +28.5%
= (+$294.66/$37,705.34) * (365/10 days); or
2. Absolute Return-on-Investment (If Honeywell shares assigned at $190.00 at the 8/18/2023 options expiration date): +1.3%
= +$500.66/$37,705.34
Annualized Return-on-Investment (If HON shares assigned at $190.00 at the August 18th, 2023 expiration): +25.5%
= (+$500.66/$37,705.34) * (365/19 days)
These returns will be achieved as long as the stock is above the $190.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $187.49 ($193.51 -$4.99 -$1.03) provides a 3.1% 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 Honeywell position, eight of the nine criteria are achieved.
