Established Covered Calls in Morgan Stanley

During the first half hour of trading this morning, a Covered Calls position was established in Morgan Stanley (ticker symbol MS) when 300 shares were purchased at $140.46 and 3 August 8th, 2025 Call options were sold at $4.76 per share at the $137.00 strike price.  The net debit limit order at $135.70 was executed, so the time value was $1.30 per share [$4.76 Call options premium - ($140.46 stock purchase price - $137.00 strike price)]. There is also an upcoming quarterly ex-dividend of $1.00 per share on July 31st (an increase of 8.1% from last year and a current annual dividend yield of 2.8%), so two potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the August 8th, 2025 options expiration date.  Morgan Stanley's Q2 2025 earnings report last Wednesday was very positive which also means there will be no new earnings report prior to the options expiration date.  From a technical indicators viewpoint, Market Edge's current rating of Morgan Stanley is "Strong Buy"; and my Stock Rover platform has identified zero red flags for Morgan Stanley.  An in-the-money Covered Calls position was established when the probability of the stock closing in-the-money (and therefore being assigned) on the 8/8/2025 options expiration date was 69.3%.  

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields (such as the 2.8% annual dividend yield for this Morgan Stanley position).  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new August 8th, 2025 Morgan Stanley Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of six megacap U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Morgan Stanley, and/or Wells Fargo for Feb, May, Aug, and Nov options expirations; and Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations). 

The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date would be achieved; or (2) have the stock assigned early on the last trading day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is somewhat greater than what would be achieved if the stock was instead assigned on its options expiration date (which is the case for this Morgan Stanley position).  So far, applying this approach has provided attractive annualized return results -- significantly better than would be achieved if Covered Calls positions for these bank stocks were instead held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.   

As detailed below, two potential return-on-investment results are: 

•  +1.0% absolute return (equivalent to +34.8% annualized return-on-investment for the next 10 days) if the stock is assigned early (on the last business day prior to the July 31st, 2025 ex-dividend date); OR 

• +1.7% absolute return (equivalent to +34.3% annualized return-on-investment over the next 18 days) if the stock is assigned on the August 8th, 2025 options expiration date.

Morgan Stanley (MS) -- New Covered Calls Position
The buy/write transaction was:
7/21/2025 Bought 300 Morgan Stanley shares @ $140.46
7/21/2025 Sold 3 Morgan Stanley 8/8/2025 $137.00 Call options @ $4.76
Note: the Implied Volatility of the Call options was 21.9 when this buy/write transaction was executed.
7/31/2025 Upcoming quarterly ex-dividend of $1.00 per share

Two possible overall performance results (including commissions) for this Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $40,712.01
= ($140.46 - $4.76) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,425.99
= ($4.76 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on July 30th, the last business day prior to the July 31st ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at the August 8th, 2025 expiration): +$300.00         

= ($1.00 dividend per share x 300 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on July 31st): -$1,038.00
+($137.00 strike price - $140.46 stock purchase price) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $137.00 strike price at the 8/8/2025 options expiration): -$1,038.00
+($137.00 - $140.46) * 300 shares

1. Total Net Profit [If option exercised early on the last business day prior to the July 31st ex-dividend date)]: +$387.99

= (+$1,425.99 options income +$0.00 dividend income -$1,038.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $137.00 strike price at the August 8th, 2025 expiration): +$687.99

= (+$1,425.99 + $300.00 - $1,038.00)

1. Potential Absolute Return-on-Investment (If option exercised early on July 31st): +1.0%

= +$387.99/$40,712.01

Potential Annualized Return-on-Investment: +34.8%

= (+$387.99/$40,712.01) * (365/10 days); or

2. Potential Absolute Return-on-Investment (If Morgan Stanley shares assigned at $137.00 at the August 8th, 2025 options expiration): +1.7%

= +$687.99/$40,712.01

Potential Annualized Return-on-Investment (If Morgan Stanley shares assigned at the August 8th options expiration date): +34.3%

= (+$687.99/$40,712.01) * (365/18 days)

Either outcome would provide an attractive return-on-investment result for this Morgan Stanley investment.  These returns will be achieved as long as the stock is above the $137.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $132.70 ($140.46 - $4.76 - $3.00) provides 5.5% 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 Morgan Stanley position, all nine criteria were met.