Established Covered Calls Position in CVS Health Corporation

My Covered Calls net debit limit order in CVS Health Corporation (ticker CVS) was executed for 300 shares of the January 26th, 2024 $78.00s purchased at $78.90 per share and the 3 Calls were sold for $1.58 per share. This $77.32 net debit had a $.68 per share time value profit potential when this order was transacted. This is a slightly in-the-money position since the stock price was established at a price 1.2% above the $78.00 strike price.  The Delta was 62.3 when this Covered Calls position was established, which approximates the probability of 62.3% that the Call options will be in-the-money on the options expiration date. 

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly ex-dividend of $.665 per share (3.4% annualized dividend yield) goes ex-dividend in eight days (on January 19th), which is prior to the January 26th options expiration date.  The stock would have to move up in price by the last business day prior to the January 19th ex-div date and by an amount that would cause the time value remaining in the option to decline from its $.68 value today to about $.15 or less for the Call options to be assigned early.  Another positive feature of this position is that the next quarterly earnings report on February 7th, 2024 is after the January 26th options expiration date.
  
CVS is rated, on average, as Outperform by the 26 Wall Street analysts that cover it and their average target price is $110.48 (+40.0% above today's purchase price).  CVS' valuation is attractive with its trailing-twelve-months P/E Ratio at only 9.2 and its planned future long-term EPS growth rate of "low double-digits" is higher than its current P/E Ratio.   

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

•  +0.9% absolute return-on-investment (equivalent to +39.7% annualized return-on-investment for the next 8 days) if the stock is assigned early (business day prior to the January 19th ex-dividend date); OR 

• +1.7% absolute return-on-investment (equivalent to +42.1% annualized return-on-investment over the next 15 days) if the stock is assigned on the January 26th, 2023 options expiration date.

CVS Health Corporation (CVS) -- New Covered Calls Position

The buy/write transaction was:
1/11/2024 Bought 300 CVS shares @ $78.90
1/11/2024 Sold 3 CVS 1/26/2024 $78.00 Call options @ $1.58
1/19/2024 Upcoming quarterly ex-dividend of $.665 per share.  The Implied Volatility of the Calls was 16.9 which, as preferred, is greater than the current 12.9 of the S&P 500 Volatility Index (i.e. VIX). 

Two possible overall performance results (including commissions) for this CVS Health Covered Calls position are as follows:
CVS Covered Calls Net Investment: $23,198.01
= ($78.90 - $1.58) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$471.99
= ($1.58 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on Jan. 18th, the last business day prior to the 1/19/2024 ex-div date): +$0.00; or
(b) Dividend Income (If CVS stock assigned at the January 26th, 2024 options expiration date): +$199.50
= ($.665 dividend per share x 300 shares)

(c) Capital Appreciation (If CVS Call options assigned early): -$270.00
= +($78.00 strike price - $78.90 stock purchase price) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $78.00 strike price at the 1/26/2024 options expiration): -$270.00
= +($78.00 - $78.90) * 300 shares

1. Potential Total Net Profit [If option exercised early]: +$201.99

= (+$471.99 options income +$0.00 dividend income -$270.00 capital appreciation); or

2. Potential Total Net Profit (If CVS shares assigned at $78.00 at the January 19th, 2024 expiration date): +$401.49

= (+$471.99 options income +$199.50 dividend income -$270.00 capital appreciation)

1. Absolute Return-on-Investment [If option exercised early on Jan. 18th (business day prior to ex-dividend date)]: +0.9%

= +$201.99/$23,198.01

Annualized Return-on-Investment (If option exercised early): +39.7%

= (+$201.99/$23,198.01) * (365/8 days); or

2. Absolute Return-on-Investment (If CVS shares assigned at $78.00 at the Jan. 26th, 2024 options expiration date): +1.7%

= +$401.49/$23,198.01

Annualized Return-on-Investment (If CVS shares assigned at $78.00 at the 1/26/2024 options expiration date): +42.1%

= (+$401.49/$23,198.01) * (365/15 days)

Either outcome provides a good annualized return-on-investment result -- well above the minimum desired 25.0% aroi for positions with from 10 to 19 days remaining until expiration.  These returns will be achieved as long as the stock is above the $78.00 strike price when the position is assigned.  However, if the stock declines below the strike price, the breakeven price of $76.655 ($78.90 -$1.58 -$.665) provides 2.8% 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.  Eight of the nine criteria are achieved for this CVS Health Corporation Covered Calls position.
Note regarding Criteria #3 -- the "Equivalent Annualized Dividend Yield (at the stock purchase price) must exceeds 5.0%."  For this CVS position, the Equivalent Annualized Dividend Yield of 20.5% which is calculated as ($.665/$78.90) x (365/15 days)] which in this CVS position achieves the objective in this case since it exceeds the minimum 5.0% threshold for this criteria.