This position uses the Covered Calls Advisor's Dividend Capture Strategy (see here) since JD.com has an upcoming annual ex-dividend of $.76 per share (11.0% annual dividend yield) on Thursday, April 4th which is prior to the April 19th options expiration date. I am encouraged by the increase in their annual dividend from $.62 last year to $.76 now (a 22.6% increase). This dividend is included in the detailed return-on-investment calculations below. Either an early assignment on April 3rd (the last trading day prior to the April 4th ex-dividend date) or on the April 19th options expiration date would provide excellent annualized return on investment results for either outcome. As shown on the table at the bottom of this post, all nine criteria of the Dividend Capture Strategy are met with this position. The Delta for these Call options was approximately 70.1 when this position was established which approximates the probability of 70.1% that the position will be in-the-money at market close on the options expiration date. Also, 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 9th, 2024 is after the April 19th options expiration date.
JD.com is a holding company engaged in e-commerce businesses primarily in China, so it is included in the Consumer Discretionary sector. Its primary business is its retail segment which, through its own online platform, sells electronics, home appliances, and many other general merchandise categories. On this platform it also provides marketing and advertising services to third-party merchants. In its other business it offers comprehensive logistics services including warehousing, transportation, deliveries, and post-sales services.
According to LSEG (Refinitiv), there are 39 Wall Street analysts covering JD.com and their current average Target Price is $38.60 which is +38.5% above today's stock purchase price. Another reason for establishing this position was that JD.com is highly ranked in my Quality +Value +Growth stock screener since it met all 18 filters (see chart below).
As detailed below, two potential return-on-investment results for this in-the-money Covered Calls position are:
- +2.4% absolute return-on-investment (equivalent to +59.6% annualized
return-on-investment for the next 15 days) if the stock is assigned early (on the last business day
prior to the April 4th ex-dividend date); or
- +5.4% absolute return-on-investment (equivalent to +65.5% annualized return-on-investment over the next 30 days) if the stock is assigned on the April 19th, 2024 options expiration date.
The buy/write transaction was:
3/20/2024 Bought 400 JD.com shares @ $27.86.
3/20/2024 Sold 4 JD.com 4/19/2024 $26.50 Call options @ $2.00 per share. The Implied Volatility of these Call options was 35.7 when this position was established which, as I prefer, is well above the current 13.8 of the S&P 500 Volatility Index (i.e. VIX).
4/4/2024 Upcoming annual ex-dividend of $.76 per share.
Two possible overall performance results (including commissions) for this JD.com Covered Calls position are as follows:
Covered Calls Net Investment: $10,346.68
= ($27.86 - $2.00) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$797.32
= ($2.00 * 400 shares) - $2.68 commission
(b) Dividend Income (If JD.com Call options exercised early on April 3rd, 2024, the last business day prior to the April 4th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at the April 19th, 2024 options expiration date): +$304.00
= ($.76 dividend per share x 400 shares)
(c) Capital Appreciation (If JD.com's Call options assigned early on April 3rd): -$544.00
+($26.50 strike price - $27.86 stock purchase price) * 400 shares; or(c) Capital Appreciation (If shares assigned at $26.50 strike price at the April 19th options expiration): -$544.00
+($26.50 - $27.86) * 400 shares
1. Total Net Profit [If option exercised early (business day prior to the April 4th ex-dividend date)]: +$253.32
= (+$797.32 options income +$0.00 dividend income -$544.00 capital appreciation); or
2. Total Net Profit (If JD.com's shares assigned at $26.50 at the April 19th, 2024 expiration): +$557.32
= (+$797.32 options income +$304.00 dividend income -$544.00 capital appreciation)
1. Potential Absolute Return-on-Investment [If option exercised on business day prior to the 4/4/2024 ex-dividend date]: +2.4%
= +$253.32/$10,346.68
Potential Annualized Return-on-Investment (If option exercised early): +59.6%
= (+$253.32/$10,346.68) * (365/15 days); or
2. Potential Absolute Return-on-Investment (If JD.com's shares assigned on the April 19th options expiration date): +5.4%
= +$557.32/$10,346.68
Potential Annualized Return-on-Investment (If shares are assigned at $26.50 at the April 19th, 2024 options expiration date): +65.5%
= (+$557.32/$10,346.68) * (365/30 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 JD.com Inc. Covered Calls position.
