At today's purchase price, the upcoming ex-dividend of $.23 on February 14th has a 2.0% annualized dividend yield. The Implied Volatility of the Call options was 22.9 which (as preferred by the Covered Calls Advisor) is above the current 16.5 of the S&P 500 Volatility Index (i.e. VIX) and the probability that this position will be in-the-money on the 2/21/2025 options expiration date was 71.3% when this position was established.
This relatively short-term (only 14 days until options expiration) position is established to take advantage of the potential to achieve a high annualized return-on-investment in a position that meets all nine criteria of the Covered Calls Advisor's Dividend Capture Strategy (see table below at the end of this post). Baker Hughes is among several attractively priced companies at present in the Oil and Gas Equipment and Services industry. It appeared today in four of my stock screeners including my Quality+Value+Growth screener where all 17 filters are met:
As detailed below, two potential return-on-investment results are:
- +0.9% absolute return (equivalent to +46.0% annualized return for the next 7 days) if the stock is assigned early on the day prior to next Friday's ex-dividend date); OR
- +1.4% absolute return (equivalent to +36.4% annualized return over the next 14 days) if the stock is assigned on the February 21st options expiration date.
Baker Hughes Company (BKR) -- New Covered Calls Position
2/7/2025 Bought 500 Baker Hughes shares @ $46.26
2/7/2025 Sold 5 BKR 2/21/2025 $45.00 Call options @ $1.66 per share.
2/14/2025 Upcoming quarterly ex-dividend of $.23 per share
Two possible overall performance results (including commissions) for this Baker Hughes Company Covered Calls position are as follows:
Covered Calls Cost Basis: $22,303.35
= ($46.26 - $1.66) * 500 shares + $3.35 commission
Net Profit Components:
(a) Options Income: +$826.65
= ($1.66 * 500 shares) - $3.35 commission
(b) Dividend Income (If option exercised early on February 13th, the last business day prior to the Feb. 14th ex-div date): +$0.00; or
(b) Dividend Income (If Baker Hughes stock assigned at the February 21st, 2025 options expiration date, in which case the $.23 dividend is captured): +$115.00
= ($.23 dividend per share x 500 shares)
(c) Capital Appreciation (If BKR Call options assigned early on 2/13/2025): -$630.00
+($45.00 - $46.26) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $45.00 strike price at the 2/21/2025 options expiration date): -$630.00
+($45.00 - $46.26) * 500 shares
+($45.00 - $46.26) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $45.00 strike price at the 2/21/2025 options expiration date): -$630.00
+($45.00 - $46.26) * 500 shares
1. Total Net Profit [If option exercised on 2/13/2025 (business day prior to the 2/14/2025 ex-dividend date)]: +$196.65
= (+$826.65 options income +$0.00 dividend income -$630.00 capital appreciation); or
2. Total Net Profit (If Baker Hughes shares assigned at $45.00 on the August 21st, 2025 options expiration date): +$311.65
= (+$826.65 +$115.00 -$630.00)
1. Absolute Return-on-Investment [If option exercised on Feb. 13th (business day prior to the ex-dividend date)]: +0.9%
= +$196.65/$22,303.35
Annualized Return-on-Investment (If option exercised early): +46.0%
= (+$196.65/$22,303.35) * (365/7 days); or
2. Absolute Return-on-Investment (If Baker Hughes shares assigned at $45.00 at the 2/21/18/2025 options expiration date): +1.4%
= +$311.65/$22,303.35
Annualized Return-on-Investment (If BKR shares assigned at $45.00 at the Feb. 21st, 2025 options expiration date): +36.4%
= (+$311.65/$22,303.35) * (365/14 days)
Either outcome provides an attractive return-on-investment result for this Baker Hughes Company investment. These returns will be achieved as long as the stock is above the $45.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $44.37 ($46.26 -$1.66 -$.23) provides a 4.1% downside protection below today's stock purchase price.
At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position. As shown below with this Baker Hughes position, all nine criteria are achieved.
