This position uses the Covered Calls Advisor's Dividend Capture Strategy (see description here). Citigroup has an upcoming quarterly ex-dividend of $.56 per share (an increase from the previous year's rate of $.53) that goes ex-dividend on May 5th, 2025 which is prior to the May 16th options expiration date. This is equivalent to an absolute annual dividend yield of 3.6% (at the current $62.11 stock price) and more importantly for this Covered Calls position, an equivalent annualized dividend yield of 11.0% = [($.56/$62.11) x (365/30)] for the 30 days duration of this position. This dividend is included in the detailed potential return-on-investment calculations below. Either an early assignment on the day prior to the ex-dividend date or on the May 16th, 2025 options expiration date would be desirable to the Covered Calls Advisor given the attractive potential annualized return-on-investment results upon assignment for either outcome.
Citigroup has beat analysts' quarterly earnings-per-share estimates in each of their past 3 years (12 quarters) and they project fiscal year 2025 eps to be +22.8% above the 2024 eps result. In addition, Citi's price-to-tangible-book-value of .64 is less than half that of all its U.S.-based mega-bank peers. The 21 analysts following Citi have an average target price of $86.12 (+38.7% above today's purchase price).
As detailed on the table at the bottom of this post, all nine criteria of the Dividend Capture Strategy are met with this position. The Covered Calls Advisor's current Overall Market Meter outlook remains Neutral and a moderately in-the-money strike price was used in this case. The probability that this position will be in-the-money and therefore assigned on its 5/16/2025 expiration date was 71.3% when this position was established.
As detailed below, two potential return-on-investment results are:
- +2.2% absolute return (equivalent to +41.4% annualized return-on-investment for the next 19 days) if the stock is assigned early (business day prior to the May 5th ex-dividend date); OR
- +3.2% absolute return (equivalent to +38.3% annualized return-on-investment over the next 30 days) if the stock is assigned on the May 16th options expiration date.
The simultaneous buy/write transaction was:
4/16/2025 Bought 300 Citigroup Inc. shares @ $62.11.
4/16/2025 Sold 3 Citi 5/16/2025 $57.50 Call options @ $5.83 per share.
Note: The Implied Volatility of the Call options was 43.8 when this position was transacted.
5/05/2025 Upcoming quarterly ex-dividend of $.56 per share.
Two possible overall performance results (including commissions) for this Citigroup Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $16,886.01
= ($62.11 - $5.83) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$1,746.99
= ($5.83 * 300 shares) - $2.01 commission
(b) Dividend Income (If options exercised early on May 2nd, the last business day prior to the May 5th, 2025 ex-div date): +$0.00; or
(b) Dividend Income (If Citigroup stock assigned on the May 16th, 2025 options expiration date): +$168.00
= ($.56 dividend per share x 300 shares)
+($57.50 strike price - $62.11 stock purchase price) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $57.50 strike price at options expiration): -$1,383.00
+($57.50 - $62.11) * 300 shares
Either outcome provides a satisfactory return-on-investment result for this Citigroup Covered Calls investment. These returns will be achieved as long as the stock is above the $57.50 strike price at assignment. However, if the stock declines below the strike price, the breakeven price of $55.72 = ($62.11 stock price - $5.83 Call options price - $.56 dividend) provides 10.3% 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 (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy. As shown in the chart below, all nine criteria are achieved for this Citigroup Covered Calls position.
