This afternoon, my Covered Calls buy/write net debit limit order in The Hershey Company (ticker HSY) for the November 24th, 2023 expiration and at the $182.50 strike price and at a net debit limit price of $181.70 per share was executed immediately after my order was placed. Two hundred shares were purchased at $188.39 and two 11/24/2023 Call options were sold at the $182.50 strike price for $6.69 per share. So, the potential time value profit from the Call options is $.80 per share [$182.50 strike price - ($188.39 stock purchase price - $6.69 Call options price)].
In addition to the potential time value profit of $.80 per share, there is an upcoming quarterly ex-dividend of $1.192 per share (2.5% annual dividend yield) on November 16th which is included in the potential return-on-investment calculations detailed below. When this in-the-money Covered Calls position was transacted this afternoon it had a probability of assignment on the options expiration date of 77.6%.
As detailed below, two potential return-on-investment results are:
- +0.4% absolute return-on-investment (equivalent to +23.3% annualized
roi for the next 7 days) if the stock is assigned early (the last business day
prior to the November 16th, 2023 ex-dividend date); OR
- +1.2%
absolute return-on-investment (equivalent to +28.6% annualized roi over the next 15 days) if the stock is assigned on the November 24th, 2023 options expiration date.
These returns will be achieved as long as Hershey's stock price is
above the $182.50 strike price when assigned. If the stock declines
below the strike price, the breakeven price of $180.508 per share ($188.39 stock purchase price - $6.69 Call options selling price - $1.192 ex-dividend amount)
provides a 4.2% downside breakeven protection if assigned on the options expiration date.
Hershey appeared today in one of my favorite stock screeners (Large Cap Value +Profitability +Growth). As shown below, it met all 18 factors in this screener and Wall Street analysts that follow Hershey have a current target price of $227.39 (+20.7% above today's purchase price).
Also, Hershey made a new product announcement today that is warmly welcomed (at least by me):The "Reese's Caramel Big Cup", which will be available beginning on November 17th:
The Hershey Company (HSY) -- New Covered Calls Position
If the stock price increases to the point where the
current time value (i.e. extrinsic value) of $.80 remaining in the short Call
options decays substantially (down to approximately $.15 or less) before market close on November 15th, 2023 (the last business day prior to the 11/16/2023 ex-dividend date), there is
a possibility that the Call options owner would exercise early and
therefore call the 200 Hershey Company shares away to capture the dividend payment. The transaction as well as potential return-on-investment results are detailed as follows:
The simultaneous buy/write transaction was:
11/9/2023 Bought 200 The Hershey Company shares @ $188.39
11/9/2023 Sold 2 HSY November 24th, 2023 $182.50 Call options @ $6.69 per share
11/16/2023 Upcoming quarterly ex-dividend at $1.192 per share.
Two possible overall performance results (including commissions) for this Hershey Company Covered Calls position are as follows:
Covered Calls Net Investment: $36,341.34
= ($188.39 - $6.69) * 200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$1,366.66
= ($6.69 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Nov. 15th, the last business day prior to the November 16th ex-div date): +$0.00;
or
(b) Dividend Income (If Hershey's shares assigned at the Nov. 24th, 2023 options expiration date): +$238.40
= ($1.192 dividend per share x 200 shares)
(c) Capital Appreciation (If Hershey's stock is assigned early): -$1,178.00
+($182.50 -$188.39) * 200 shares; or
(c) Capital Appreciation (If Hershey's shares assigned at $182.50 strike price at options expiration): -$1,178.00
+($182.50 -$188.39) * 200 shares
1. Total Net Profit (If option exercised early): +$188.66
= (+$1,366.66 options income +$0.00 dividend income -$1,178.00 capital appreciation); or
2. Total Net Profit (If Hershey stock assigned at $182.50 at the 11/24/2023 expiration): +$427.06
= (+$1,366.66 options income +$238.40 dividend income -$1,178.00 capital appreciation)
1. Absolute Return-on-Investment (If option exercised on the last business day prior to the 11/14/2023 ex-dividend date): +0.4%
= +$162.66/$36,341.34
Annualized Return-on-Investment (If option exercised early): +23.3%
= (+$162.66/$36,341.34) * (365/7 days); or
2. Absolute Return-on-Investment (If Hershey's stock assigned at $182.50 at the Nov. 24th options expiration date): +1.2%
= +$427.06/$36,341.34
Annualized Return-on-Investment (If Hershey's shares assigned at $182.50 at the 11/24/2023 options expiration date): +28.6%
= (+$427.06/$36,341.34) * (365/15 days)
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 below, eight of the nine criteria are achieved for this Hershey Company position.
The original Buy/Write transaction was as follows:
