As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +16.1% annualized return for the next 32 days) if the stock is assigned early (business day prior to July 3rd ex-date); OR +2.0% absolute return (equivalent to +13.8% annualized return over the next 53 days) if the stock is assigned on the July 21, 2017 options expiration date.
JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
The transactions were:
05/30/2017 Bought 400 JPM shares @ $84.73
05/20/2017 Sold 4 JPM Jul2017 $82.50 Call options @ $3.46
Note: a simultaneous buy/write transaction was executed.
07/03/2017 Upcoming quarterly ex-dividend of $.50 per share
Two possible overall performance results (including commissions) for this JPM covered calls position are as follows:
Stock Purchase Cost: $33,896.95
= ($84.73*400+$4.95 commission)
(a) Options Income: +$1,376.45
= ($3.46*400 shares) - $7.55 commissions
(b) Dividend Income (If option exercised early on June 30th, the business day prior to July 3rd ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at Jul2017 expiration): +$200.00
= ($.50 dividend per share x 400 shares)
Either outcome provides a satisfactory return-on-investment result for this investment. These returns will be achieved as long as the stock is above the $82.50 strike price at assignment. If the stock declines below the strike price, the breakeven price of $80.77 ($84.73 -$3.46 -$.50) provides 4.7% downside protection below today's purchase price.
The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy. The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved. As shown in the table below, eight of the eleven criteria are achieved for this JPMorgan position.