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 $.60 per share (1.7% annualized dividend yield) goes ex-dividend on May 10th (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 10th ex-div date and by an amount that would cause the time value remaining in the option to decline from its $1.04 value today to about $.20 or less. If this occurs, the owner of the two Call options might exercise their right to purchase the stock at the $138.00 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 would be a desirable outcome since its +39.3% annualized return-on-investment (aroi) is greater than the +31.1% aroi that would be achieved if the position were to be instead assigned on its May 17th options expiration date. 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 my Dividend Capture Strategy. Also, as I prefer, there is no intervening quarterly earnings report since Capital One's next quarterly earnings report on July 18th, 2024 is after this position's May 17th, 2024 options expiration date.
As detailed below, two potential return-on-investment results are:
- +0.8% absolute return (equivalent to +39.3% annualized return-on-investment for the next 7 days) if the stock is assigned early (business day prior to the May 10th ex-dividend date); OR
- +1.2% absolute return (equivalent to +31.1% annualized return-on-investment over the next 14 days) if the stock is assigned on the May 17th, 2022 options expiration date.
Capital One Financial Corporation (COF) -- New Covered Calls Position
The buy/write transaction was:
5/3/2024 Bought 200 Capital One Financial shares @ $142.21
5/3/2024 Sold 2 Capital One 5/17/2024 $138.00 Call options @ $5.25 per share. The Implied Volatility of the Calls was 20.2 when this transaction occurred which, as I prefer, is well above the current S&P 500 Volatility Index (i.e. VIX) of 13.6.
5/10/2024 Upcoming quarterly ex-dividend of $.60 per share
Two possible overall performance results (including commissions) for this Capital One Covered Calls position are as follows:
Covered Calls Net Investment: $27,393.34
= ($142.21 - $5.25) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,048.66
= ($5.25 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on May 9th, the last business day prior to the May 10th ex-div date): +$0.00; or
(b) Dividend Income (If COF stock assigned at the May 17th, 2024 options expiration date): +$120.00
= ($.60 dividend per share x 200 shares)
(c) Capital Appreciation (If Capital One Call options assigned early): -$842.00
+($138.00 strike price - $142.21 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $138.00 strike price at options expiration): -$842.00 = +($138.00 - $142.21) * 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. All nine criteria are achieved for this Capital One Financial Covered Calls position.
