This position uses the Covered Calls Advisor's Dividend Capture Strategy since Lowe's has an upcoming quarterly ex-dividend of $1.10 per share on October 24th) which is prior to the November 3rd options expiration date. This is equivalent to an absolute annual dividend yield of 2.2% and an equivalent annualized dividend yield of 9.8% = [($1.10/$195.79) x (365/21 days to expiration)]. This dividend is included in the detailed return-on-investment calculations below. Either an early assignment on the day prior to the ex-dividend date or on the November 3rd expiration date would be desirable to the Covered Calls Advisor given the potential annualized return on investments for either outcome. Importantly to the Covered Calls Advisor, there is no quarterly earnings report prior to the options expiration date since the next earnings report on November 21st after the November 3rd options expiration date.
Lowe's Companies Inc. (LOW) -- New Covered Calls Position
The buy/write transaction was:
10/13/2023 Bought 200 Lowe's Companies Inc. shares @ $195.79
10/13/2023 Sold 2 Lowe's 11/3/2023 $190.00 Call options @ $8.05
Note: Implied Volatility (IV) of the Call options was at 24.7 when this position was transacted which, as preferred, is above the current VIX of 19.2.
10/24/2023 Upcoming quarterly ex-dividend of $1.10 per share
Two possible overall performance results (including commissions) for this Lowe's Companies Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $37,549.34
= ($195.79 - $8.05) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,608.66
= ($8.05 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Oct. 23rd, 2023, the business day prior to the October 24th ex-div date): +$0.00; or
(b) Dividend Income (If Lowe's stock assigned at the November 3rd, 2023 options expiration): +$220.00
= ($1.10 dividend per share x 200 shares)
(c) Capital Appreciation (If Lowe's Call options assigned early on October 24th): -$1,158.00
+($190.00 - $195.79) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $190.00 strike price at options expiration): -$1,158.00
+($190.00 - $195.79) * 200 shares
Either outcome provides an attractive return-on-investment result for this Lowe's Companies Inc. investment. These returns will be achieved as long as the stock is above the $190.00 strike price at assignment. However, if the stock declines below the strike price, the breakeven price of $186.64 ($195.79 -$8.05 -$1.10) provides 4.7% 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 (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy. As shown below, all nine criteria are achieved for this Lowe's Companies Inc. Covered Calls position.
As shown on the table at the bottom of this post, all nine criteria of
the Dividend Capture Strategy are met
with this position. Even if Lowe's stock market declines somewhat during the next 21 days until the options expiration date, if the stock closes above the $190.00 strike price, then a very satisfactory annualized-return-on-investment of +31.0% will be achieved. The Delta for these Call options was 68.8 when this position was established which approximates the probability that the position will be in-the-money at market close on the options expiration date.
As detailed below, two potential return-on-investment results are:
- +1.2% absolute return (equivalent to +39.8% annualized
return for the next 11 days) if the stock is assigned early (business day
prior to the October 24th ex-dividend date).
- +1.8% absolute return (equivalent to +31.0% annualized return over the next 21 days) if the stock is assigned on the November 3rd, 2023 options expiration date.
Lowe's Companies Inc. (LOW) -- New Covered Calls PositionThe buy/write transaction was:
10/13/2023 Bought 200 Lowe's Companies Inc. shares @ $195.79
10/13/2023 Sold 2 Lowe's 11/3/2023 $190.00 Call options @ $8.05
Note: Implied Volatility (IV) of the Call options was at 24.7 when this position was transacted which, as preferred, is above the current VIX of 19.2.
10/24/2023 Upcoming quarterly ex-dividend of $1.10 per share
Two possible overall performance results (including commissions) for this Lowe's Companies Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $37,549.34
= ($195.79 - $8.05) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,608.66
= ($8.05 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Oct. 23rd, 2023, the business day prior to the October 24th ex-div date): +$0.00; or
(b) Dividend Income (If Lowe's stock assigned at the November 3rd, 2023 options expiration): +$220.00
= ($1.10 dividend per share x 200 shares)
+($190.00 - $195.79) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $190.00 strike price at options expiration): -$1,158.00
+($190.00 - $195.79) * 200 shares
1. Total Net Profit [If option exercised early (business day prior to the Oct. 24th ex-dividend date)]: +$450.66
= (+$1,608.66 options income +$0.00 dividend income -$1,158.00 capital appreciation); or
2. Total Net Profit (If Lowe's shares assigned at $190.00 at the November 3rd, 2023 expiration): +$670.66
= (+$1,608.66 +$220.00 -$1,158.00)
1. Potential Absolute Return [If option exercised on business day prior to ex-dividend date]: +1.2%
= +$450.66/$37,549.34
Potential Annualized Return (If option exercised early): +39.8%
= (+$450.66/$37,549.34) * (365/11 days); or
2. Potential Absolute Return (If Lowe's shares assigned on November 3rd options expiration date): +1.8%
= +$670.66/$37,549.34
Potential Annualized Return (If Lowe's shares assigned at $190.00 at the Nov. 3rd, 2023 expiration): +31.0%
= (+$670.66/$37,549.34) * (365/21 days)
Either outcome provides an attractive return-on-investment result for this Lowe's Companies Inc. investment. These returns will be achieved as long as the stock is above the $190.00 strike price at assignment. However, if the stock declines below the strike price, the breakeven price of $186.64 ($195.79 -$8.05 -$1.10) provides 4.7% 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 (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy. As shown below, all nine criteria are achieved for this Lowe's Companies Inc. Covered Calls position.
