Established Covered Calls Position in Baker Hughes Company

A Covered Calls position was established in Baker Hughes Company (ticker symbol BKR) today when the Covered Calls Advisor's buy/write limit order at $33.72 was executed.  Five hundred shares were purchased at $35.43 and 5 August 18th, 2023 Call options were sold at $1.71 at the $34.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.28 per share [$1.71 Call options premium - ($35.43 stock purchase price - $34.00 strike price)], all of which will be profit if the stock is assigned (either by early assignment this Friday on the last business day prior to next Monday's August 7th ex-dividend date or at the August 18th options expiration date).

At today's purchase price, the upcoming ex-dividend of $.20 on August 7th has a 2.3% annualized dividend yield.  The Implied Volatility of the Call options was 23.4 which (as preferred by the Covered Calls Advisor) is above the current 14.0 of the S&P 500 Volatility Index (i.e. VIX) and the Delta was 75.0 which approximates a 75.0% 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 high annualized return-on-investment in a position that meets all nine criteria of the Covered Calls Advisor's Dividend Capture Strategy (see table below at the end of this post).  Baker Hughes is among several attractively priced companies at present in the Oil and Gas Equipment and Services industry.  It appeared in my Future 5-Year Growth stock screener and Wall Street analysts have a current average target price of $39.54 (+11.6% above today's purchase price.

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

•  +0.8% absolute return (equivalent to +42.3% annualized return for the next 7 days) if the stock is assigned early this Friday (the last business day prior to the August 7th ex-dividend date); OR 

• +1.4% absolute return (equivalent to +27.0% annualized return over the next 19 days) if the stock is assigned on the August 18th options expiration date.

Baker Hughes Company (BKR) -- New Covered Calls Position

The buy/write transaction was:
7/31/2023 Bought 500 Baker Hughes shares @ $35.43
7/31/2023 Sold 5 BKR 8/18/2023 $34.00 Call options @ $1.71
8/7/2023 Upcoming quarterly ex-dividend of $.20 per share

Two possible overall performance results (including commissions) for this Baker Hughes Company Covered Calls position are as follows:
Covered Calls Cost Basis: $16,863.35
= ($35.43 - $1.71) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$851.65
= ($1.71 * 500 shares) - $3.35 commission
(b) Dividend Income (If option exercised early on August 4th, the last business day prior to the August 7th ex-div date): +$0.00; or
(b) Dividend Income (If Baker Hughes stock assigned at the August 18th, 2023 options expiration date, in which case the $.20 dividend is captured): +$100.00
= ($.20 dividend per share x 500 shares)

(c) Capital Appreciation (If BKR Call options assigned early on 8/4/2023): -$715.00
+($34.00 - $35.43) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $34.00 strike price at the 8/18/2023 options expiration date): -$715.00
+($34.00 - $35.43) * 500 shares

1. Total Net Profit [If option exercised on 8/4/2023 (business day prior to the 8/7/2023 ex-dividend date)]: +$136.65

= (+$851.65 options income +$0.00 dividend income -$715.00 capital appreciation); or

2. Total Net Profit (If Baker Hughes shares assigned at $34.00 on the August 18th, 2023 options expiration date): +$236.65

= (+$851.65 +$100.00 -$715.00)

1. Absolute Return-on-Investment [If option exercised on Aug. 4th (business day prior to the ex-dividend date)]: +0.8%

= +$136.65/$16,863.35

Annualized Return-on-Investment (If option exercised early): +42.3%

= (+$136.65/$16,863.35) * (365/7 days); or

2. Absolute Return-on-Investment (If Baker Hughes shares assigned at $34.00 at the 8/18/2023 options expiration date): +1.4%

= +$236.65/$16,863.35

Annualized Return-on-Investment (If BKR shares assigned at $34.00 at the August 18th, 2023 expiration): +27.0%

= (+$381.65/$16,863.35) * (365/19 days)

Either outcome provides an attractive return-on-investment result for this Baker Hughes Company investment.  These returns will be achieved as long as the stock is above the $34.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $33.52 ($35.43 -$1.71 -$.20) provides a 5.4% 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 Baker Hughes position, all nine criteria are achieved.