Established Covered Calls in Morgan Stanley

This morning at 10:20am ET, a Covered Calls position was established in Morgan Stanley (ticker symbol MS) when 300 shares were purchased at $72.43 and 3 November 10th, 2023 Call options were sold at $3.19 per share at the $70.00 strike price.  The net debit limit order at $69.24 was executed, so the time value was $.76 per share [$3.19 Call options premium - ($72.43 stock purchase price - $70.00 strike price)]. There is an upcoming quarterly ex-dividend of $.85 (annual dividend yield of 4.7%) on October 30th., so two potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the November 10th, 2023 options expiration date.  Their Q4 2022 earnings were reported two days ago, so there will be no new earnings report prior to the options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of 71.4.  For the 25 Wall Street analysts' covering Morgan Stanley, their current average target price is $91.48 which is +26.3% above today's stock purchase price.

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields (such as the 4.7% annual dividend yield for this Morgan Stanley position).  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new November 10th, 2023 Morgan Stanley Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of six megacap U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Morgan Stanley, and/or Wells Fargo for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations). 

The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the last trading day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date (which is the case for this Morgan Stanley position).  So far, applying this approach has provided attractive annualized return results -- significantly better than would be achieved if Covered Calls positions for these bank stocks were instead held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.   

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

•  +1.1% absolute return (equivalent to +49.6% annualized return for the next 8 days) if the stock is assigned early (on the last business day prior to the October 30th, 2023 ex-dividend date); OR 

• +2.3% absolute return (equivalent to +40.2% annualized return over the next 21 days) if the stock is assigned on the November 10th, 2023 options expiration date.

Morgan Stanley (MS) -- New Covered Calls Position
The buy/write transaction was:
10/20/2023 Bought 300 Morgan Stanley shares @ $72.43
10/20/2023 Sold 3 Morgan Stanley 11/10/2023 $70.00 Call options @ $3.19
Note: the Implied Volatility of the Call options was 26.3 when this buy/write transaction was executed.
10/30/2023 Upcoming quarterly ex-dividend of $.85 per share

Two possible overall performance results (including commissions) for this Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $20,774.01
= ($72.43 - $3.19) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$954.99
= ($3.19 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on Friday, October 27th, the last business day prior to the Monday, October 30th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at the November 10th, 2023 expiration): +$255.00         

= ($.85 dividend per share x 300 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on October 27th): -$729.00
+($70.00 - $72.43) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $70.00 strike price at the Nov. 10th options expiration): -$729.00
+($70.00 - $72.43) * 300 shares

1. Total Net Profit [If option exercised early on the last business day prior to the Jan. 30th ex-dividend date)]: +$225.99

= (+$954.99 options income +$0.00 dividend income -$729.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $70.00 strike price at the Nov. 10th, 2023 expiration): +$480.99

= (+$954.99 +$255.00 -$729.00)

1. Absolute Return-on-Investment (If option exercised early on Oct. 27th): +1.1%

= +$225.99/$20,774.01

Annualized Return-on-Investment: +49.6%

= (+$225.99/$20,774.01) * (365/8 days); or

2. Absolute Return-on-Investment (If Morgan Stanley shares assigned at $70.00 at the Nov. 10th, 2023 options expiration): +2.3%

= +$480.99/$20,774.01

Annualized Return-on-Investment (If Morgan Stanley shares assigned at the 11/10/2023 expiration): +40.2%

= (+$480.99/$20,774.01) * (365/21 days)

Either outcome would provide an attractive return-on-investment result for this Morgan Stanley investment.  These returns will be achieved as long as the stock is above the $70.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $68.39 ($72.43 -$3.19 -$.85) provides 5.6% 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 Morgan Stanley position, all nine criteria were met.