This position uses the Covered Calls Advisor's Dividend Capture Strategy (see here) since AFL has an upcoming quarterly ex-dividend of $.50 per share (+19.0% above the prior year's quarterly dividend rate and a 2.6% annual dividend yield) on February 20th which is prior to the March 1st options expiration date. This is equivalent to an annualized dividend yield of 13.9% = [($.50/$77.49) x (365/17 days to expiration)]. This dividend is included in the detailed return-on-investment calculations below. Either an early assignment on the last trading day prior to the ex-dividend date or on the March 1st options 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 May 1st, 2024 is after the 3/1/2024 options expiration date.
Aflac Inc. (AFL) -- New Covered Calls Position
The buy/write transaction was:
2/13/2024 Bought 200 Aflac Inc. shares @ $77.49.
2/13/2024 Sold 2 AFL 3/1/2024 $76.00 Call options @ $1.93 per share.
2/20/2024 Upcoming quarterly ex-dividend of $.50 per share.
Two possible overall performance results (including commissions) for this Aflac Inc. Covered Calls position are as follows:
Covered Calls Net Investment: $15,113.34
= ($77.49 - $1.93) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$384.66
= ($1.93 * 200 shares) - $1.34 commission
(b) Dividend Income (If Aflac Call options exercised early on February 19th, 2024, the last business day prior to the Feb. 20th ex-div date): +$0.00; or
(b) Dividend Income (If Aflac stock assigned at the March 1st, 2024 options expiration date): +$100.00
= ($.50 dividend per share x 200 shares)
(c) Capital Appreciation (If shares assigned at $76.00 strike price at the March 1st options expiration): -$298.00
+($76.00 - $77.49) * 200 shares
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, only seven criteria are achieved for this Aflac Inc. Covered Calls position, but the two misses were close to their respective thresholds, so I decided to go forward with establishing this position.
As shown on the table at the bottom of this post, eight of the nine criteria of the Dividend Capture Strategy are met with this position. Even if the Aflac stock price declines somewhat during the next 17 days until the options expiration date, if the stock closes above the $76.00 strike price, then a satisfactory annualized-return-on-investment of +26.5% will be achieved. The Delta for these Call options was approximately 70.0 when this position was established which approximates the probability of 70.0% 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:
- +0.6% absolute return (equivalent to +29.9% annualized
return-on-investment for the next 7 days) if the stock is assigned early (on the last business day
prior to the February 20th ex-dividend date); or
- +1.2% absolute return (equivalent to +26.5% annualized return-on-investment over the next 17 days) if the stock is assigned on the March 1st, 2024 options expiration date.
The buy/write transaction was:
2/13/2024 Bought 200 Aflac Inc. shares @ $77.49.
2/13/2024 Sold 2 AFL 3/1/2024 $76.00 Call options @ $1.93 per share.
2/20/2024 Upcoming quarterly ex-dividend of $.50 per share.
Two possible overall performance results (including commissions) for this Aflac Inc. Covered Calls position are as follows:
Covered Calls Net Investment: $15,113.34
= ($77.49 - $1.93) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$384.66
= ($1.93 * 200 shares) - $1.34 commission
(b) Dividend Income (If Aflac Call options exercised early on February 19th, 2024, the last business day prior to the Feb. 20th ex-div date): +$0.00; or
(b) Dividend Income (If Aflac stock assigned at the March 1st, 2024 options expiration date): +$100.00
= ($.50 dividend per share x 200 shares)
(c) Capital Appreciation (If AFL's Call options assigned early on Feb. 19th): -$298.00
+($76.00 - $77.49) * 200 shares; or(c) Capital Appreciation (If shares assigned at $76.00 strike price at the March 1st options expiration): -$298.00
+($76.00 - $77.49) * 200 shares
1. Total Net Profit [If option exercised early (business day prior to the Feb. 20th ex-dividend date)]: +$86.66
= (+$384.66 options income +$0.00 dividend income -$298.00 capital appreciation); or
2. Total Net Profit (If Aflac's shares assigned at $76.00 at the March 1st, 2024 expiration): +$186.66
= (+$384.66 options income +$100.00 dividend income -$298.00 capital appreciation)
1. Potential Absolute Return-on-Investment [If option exercised on business day prior to ex-dividend date]: +0.6%
= +$86.66/$15,113.34
Potential Annualized Return (If option exercised early): +29.9%
= (+$86.66/$15,113.34) * (365/7 days); or
2. Potential Absolute Return-on-Investment (If Aflac's shares assigned on March 1st options expiration date): +1.2%
= +$186.66/$15,113.34
Potential Annualized Return (If Aflac's shares assigned at $76.00 at the March 1st, 2024 expiration): +26.5%
= (+$186.66/$15,113.34) * (365/17 days)
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, only seven criteria are achieved for this Aflac Inc. Covered Calls position, but the two misses were close to their respective thresholds, so I decided to go forward with establishing this position.
