Established Covered Calls in Delta Air Lines Inc.

Today, a buy/write limit order was entered in Delta Air Lines Inc. (ticker DAL) to buy 400 shares and simultaneously sell 4 Call options at the March 1st, 2024 weekly options expiration date and at the $39.50 strike price. The net debit limit price for my order was $39.12 and this order was executed at 2:39PM ET when 400 shares were purchased at $40.93 and 4 March 1st, 2024 Call options were sold for $1.81 per share.  Therefore, a maximum potential time value profit of $.38 per share = [$1.81 options premium - ($40.93 stock price - $39.50 strike price)] is available for this position.  

This position uses the Covered Calls Advisor's Dividend Capture Strategy (see here) since Delta has an upcoming quarterly ex-dividend of $.10 per share (a 1.0% annual dividend yield) on February 23rd which is prior to the March 1st options expiration date.  This is equivalent to an annualized dividend yield of 5.9% = [($.10/$40.93) x (365/15 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 April 11th, 2024 is after the March 1st, 2024 options expiration date.

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 Delta Air Lines Inc. stock price declines somewhat during the next 15 days until the options expiration date, if the stock closes above the $39.50 strike price, then a satisfactory annualized-return-on-investment of +29.4% will be achieved.  The Delta for these Call options was approximately 73.4 when this position was established which approximates the probability of 73.4% that the position will be in-the-money at market close on the options expiration date. 

There are 20 Wall Street analysts covering Delta Air Lines and their average Target Price is $54.40 which is +32.9% above today's purchase price.  A primary reason for establishing this position was that Delta was highly ranked in my Quality +Value +Growth stock screener since all 18 criteria in that screener are currently achieved by Delta (see chart below):  

 

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

•  +1.0% absolute return (equivalent to +43.5% annualized return-on-investment for the next 8 days) if the stock is assigned early (on the last business day prior to the February 23rd ex-dividend date); or  
  

• +1.2% absolute return (equivalent to +29.4% annualized return-on-investment over the next 15 days) if the stock is assigned on the March 1st, 2024 options expiration date.

Delta Air Lines Inc. (DAL) -- New Covered Calls Position
The buy/write transaction was:
2/15/2024 Bought 400 Delta Air Lines Inc. shares @ $40.93.
2/15/2024 Sold 4 Delta 3/1/2024 $39.50 Call options @ $1.81 per share.
2/23/2024 Upcoming quarterly ex-dividend of $.10 per share.

Two possible overall performance results (including commissions) for this Delta Air Lines Inc. Covered Calls position are as follows:
Covered Calls Net Investment: $15,650.68
= ($40.93 - $1.81) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$721.32
= ($1.81 * 400 shares) - $2.68 commission
(b) Dividend Income (If Delta Air Lines Call options exercised early on February 22nd, 2024, the last business day prior to the Feb. 23rd ex-div date): +$0.00; or
(b) Dividend Income (If Delta stock assigned at the March 1st, 2024 options expiration date): +$40.00
= ($.10 dividend per share x 400 shares)

(c) Capital Appreciation (If  Delta's Call options assigned early on Feb. 22nd): -$572.00

+($39.50 - $40.93) * 400 shares; or
(c) Capital Appreciation (If shares assigned at $39.50 strike price at the March 1st options expiration): -$572.00
+($39.50 - $40.93) * 400 shares

1. Total Net Profit [If option exercised early (business day prior to the Feb. 23rd ex-dividend date)]: +$149.32

= (+$721.32 options income +$0.00 dividend income -$572.00 capital appreciation); or

2. Total Net Profit (If Delta's shares assigned at $39.50 at the March 1st, 2024 expiration): +$189.32

= (+$721.32 options income +$40.00 dividend income -$572.00 capital appreciation)

1. Potential Absolute Return-on-Investment [If option exercised on business day prior to ex-dividend date]: +1.0%

= +$149.32/$15,650.68

Potential Annualized Return-on-Investment (If option exercised early): +43.5%

= (+$149.32/$15,650.68) * (365/8 days); or

2. Potential Absolute Return-on-Investment (If Delta's shares assigned on March 1st options expiration date): +1.2%

= +$189.32/$15,650.68

Potential Annualized Return-on-Investment (If Delta's shares assigned at $39.50 at the March 1st, 2024 expiration): +29.4%

= (+$189.32/$15,650.68) * (365/15 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, all nine criteria are achieved for this Delta Air Lines Inc. Covered Calls position.