Today a Covered Calls position was established in Medtronic PLC (ticker symbol MDT) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $82.97 and 2 December 29th, 2023 Call options were sold at $1.41 at the $82.00 strike price. Given the Covered Calls Advisor's current "Neutral" Overall Market Meter outlook, a slightly in-the-money Covered Calls position was
established -- the Delta was 65.9 which closely approximates the probability
that the Call options will be
in-the-money on the options expiration date. In addition, there is an upcoming ex-dividend of $.69 per share next week on December 19th which provides an annual dividend yield of 3.3% at today's stock purchase price. Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the Dec. 29th options expiration date.
As detailed below, two potential return-on-investment results are:
- +0.6% absolute return (equivalent to +54.1% annualized
return-on-investment for the next 4 days) if the stock is assigned early (business day
prior to the December 19th ex-dividend date); OR
- +1.7%
absolute return (equivalent to +44.0% annualized return over the next 14 days) if the stock is assigned on the December 29th, 2023 options expiration date.
Medtronic PLC (MDT) -- New Covered Calls Position
The buy/write transaction was:
12/15/2023 Bought 200 Medtronic PLC shares @ $82.97
12/15/2022 Sold 2 MDT 12/29/2023 $82.00 Call options @ $1.41
Note 1: the Implied Volatility of the Calls was 13.7 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.44 per share = [$1.41 Call options premium - ($82.97 stock price - $82.00 strike price)]
12/19/2023 Upcoming quarterly ex-dividend of $.69 per share
Two possible overall performance results (including commissions) for this Medtronic Covered Calls position are as follows:
Covered Calls Net Investment: $16,313.34
= ($82.97 - $1.41) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$280.66
= ($1.41 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Dec. 18th, the business day prior to the Dec. 19th ex-div date): +$0.00;
or
(b) Dividend Income (If Medtronic stock assigned at the December 29th, 2023 options expiration date): +$138.00
= ($.69 dividend per share x 200 shares)
(c) Capital Appreciation (If Medtronic Call options assigned early on Dec. 19th): -$194.00
+($82.00 - $82.97) * 200 shares; or
(c) Capital Appreciation (If MDT shares assigned at $82.00 strike price at options expiration): -$194.00
+($82.00 - $82.97) * 200 shares
1. Total Net Profit (If option exercised early): +$86.66
= (+$280.66 options income +$0.00 dividend income -$194.00 capital appreciation); or
2. Total Net Profit (If Medtronic shares assigned at $82.00 strike price at the Dec. 29th, 2023 options expiration date): +$224.66
= (+$280.66 options income +$138.00 dividend income -$194.00 capital appreciation)
1. Absolute Return-on-Investment (If two MDT Call options exercised early on December 19th): +0.6%
= +$96.66/$16,313.34
Annualized Return-on-Investment (If options assigned early): +54.1%
= (+$96.66/$16,313.34) * (365/4 days); or
2. Absolute Return-on-Investment (If Medtronic shares assigned at $82.00 at Dec. 29th options expiration): +1.7%
= +$224.66/$16,313.34
Annualized Return-on-Investment (If MDT shares assigned at $82.00 at the Dec. 29th, 2023 options expiration): +44.0%
= (+$224.66/$16,313.34) * (365/14 days)
Either
outcome provides an attractive return-on-investment result for this
Medtronic investment. These returns will be achieved as long as the stock is
above the $82.00 strike price at assignment. If the stock declines
below the strike price, the breakeven price of $80.87 ($82.97 -$1.41 -$.69)
provides 2.5% downside protection below today's stock purchase
price.
