On March 20, 2024, I bought 101 shares with USB stock paying $42.47 per share and simultaneously sold 1, in the money, covered call on these shares with a strike price of $41 with expiry set on April 12, 2024. Credit received $198 (before commissions)
As USB is set to going ex-dividend on March 27, I will try to capture the dividend also. The dividend is $0.49 and will be paid out in April.
U.S. Bancorp is an American bank holding company based in Minneapolis, Minnesota, and incorporated in Delaware. It is the parent company of U.S. Bank National Association, and is the fifth largest banking institution in the United
When entering this trade my goal is to let shares getting called away, before dividend ex day, thus profiting from increased implied volatility. Additionally adding 1 (101) shares to our long term dividend stock portfolio
I took the idea for this trade from Covered Calls Advisor, I have been following this trader (Jeff Partlow) for a few years already, go check him out, if you haven’t already.
Now, after placing this trade I don’t feel very enthusiastic anymore, most probably because I already have 2 bank stocks in the options portfolio - MS and BAC. Too many bank stocks. Also the risk/reward ratio doesn’t seem too good, but for the simplicity of this article, I wont go much in detail at the moment. Just mention that from selling 1 DTE put options on bitcoin in 23 days I would target double options premium with similar size of capital at risk. You can learn more about my crypto options trading over here: Terramatris crypto hedge fund
This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset.
here is the trade setup:
- BOT 101 USB Stock 42.47 USD
- SLD 1 USB APR 12 '24 41 Call Option 1.98 USD
What happens next?
On the expiry date, April 12, 2024, USB is trading under $41 per share - options expire worthlessly and I keep premium - if USB trades above $41 on the expiry date, my 100 shares will get called away and I realize my max profit of $51 or potential 1.24% yield in 23 days.
If the shares will get called after dividend ex-date I will additionally collect a dividend of $49. Boosting total income to $100 or 2.43% yield in 23 days.
Break-even price: 42.47-1.98= $40.49