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 $1.67 per share (4.0% annualized dividend yield) goes ex-dividend on May 9th (which is prior to the May 17th options expiration date). The stock would have to move up in price by the last business day prior to the May 9th ex-div date and by an amount that would cause the time value remaining in the option to decline from its $1.44 value today to about $.25 or less. If this occurs, the owner of the two Call options might exercise their right to purchase the stock at the $162.50 strike price, in which case the options would immediately expire worthless but the owner of the Calls would then own the stock and would capture the dividend. This early assignment outcome would not be as desirable at a +40.6% annualized return-on-investment (aroi) as if the position would instead be in-the-money and therefore assigned at its May 17th options expiration date--which would achieve a +44.0% aroi. But either result would be attractive since they both exceed my preferred minimum annualized return-on-investment criteria (see criteria #8 and #9 at the bottom of this post) when using the Dividend Capture Strategy. Also, as I prefer, there is no intervening quarterly earnings report since IBM's next quarterly earnings report on July 24th, 2024 is after this month's options expiration date.
As detailed below, two potential return-on-investment results are:
- +0.9% absolute return (equivalent to +40.6% annualized return for the next 8 days) if the stock is assigned early (business day prior to the May 9th ex-dividend date); OR
- +1.9% absolute return (equivalent to +44.0% annualized return over the next 16 days) if the stock is assigned on the May 17th, 2022 options expiration date.
IBM Corporation (IBM) -- New Covered Call Position
The buy/write transaction was:
5/1/2024 Bought 200 IBM shares @ $165.23
5/1/2024 Sold 2 IBM 5/17/2024 $162.50 Call options @ $4.17. The Implied Volatility of the Calls was 17.4 when this transaction occurred.
5/9/2024 Upcoming quarterly ex-dividend of $1.67 per share
Two possible overall performance results (including commissions) for this IBM Covered Calls position are as follows:
Covered Calls Net Investment: $32,213.34
= ($165.23 - $4.17) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$832.66
= ($4.17 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on May 8th, the last business day prior to the May 9th ex-div date): +$0.00; or
(b) Dividend Income (If IBM stock assigned at the May 17th, 2024 options expiration date): +$334.00
= ($1.67 dividend per share x 200 shares)
(c) Capital Appreciation (If IBM Call options assigned early): -$546.00
+($162.50 strike price - $165.23 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $162.50 strike price at options expiration): -$546.00 = +($162.50 - $165.23) * 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. Eight of the nine criteria are achieved for this IBM Covered Calls position.
