Using Weekly Covered Call Options to Avoid Earnings and Ex-Dividend Dates

When entering our covered call trades, we should always avoid the risk of earnings report dates. If we choose to hold the stock through that ER date, that’s okay, but don’t cap the upside with a covered call. If one of our strategy objectives is to retain the shares and prevent exercise, we need to avoid ex-dividend dates, the main reason for early exercise.

This article will analyze a real-life example with Apple Inc. (Nasdaq: AAPL) for the November 2022 monthly contracts, starting on October 17, 2022, through November 18, 2022.

ER and ex-dividend dates during the AAPL November 2022 contracts

• ER date: 10/27/2022
• Ex-dividend dates: 11/4/2022
• Avoid weeks 2 & 3 of this 5-week monthly contract
• Write a weekly covered call from 10/17/2022 – 10/21/2022
• Write a 2-week option from 11/7/2022 – 11/18/2022

Weekly option from 10/17/2022 to 10/21/2022

• AAPL opens at $144.31 on 10/17/2022
• The 10/21/2022 $146.00 strike has a bid price of $0.50
• AAPL closes on expiration Friday at $143.39
• The option expires worthless, and shares are retained with no exit strategy intervention

2-week option from 11/7/2022 to 11/18/2022

• AAPL opens at $142.09 on 11/7/2022
• The 11/18/2022 $148.00 strike has a bid price of $0.79
• AAPL closes on expiration Friday at $150.72
• We can either roll the option or allow exercise at $148.00
• We will calculate from the perspective of allowing exercise using the BCI Trade Management Calculator (TMC)

TMC calculations for the week 10/17/2022 to 10/21/2022

• Red circle: 5-day trade
• Yellow cell: Breakeven price point is $141.59
• 5-day return is 0.35%, 25.69% annualized
• Pink cell: Additional upside potential of 2.75% if AAPL moves up to or beyond the $146.00 strike price

TMC calculations for the week 11/7/2022 to 11/18/2022

• Red circle: 12-day trade
• Yellow cell: Breakeven price point is $141.30
• 12-day return is 0.56%, 16.91 annualized
• Pink cell: Additional upside potential of 4.16% if AAPL moves up to or beyond the $148.00 strike price
• The $148.00 strike was allowed to expire in-the-money and exercise occurred as shares were sold at $148.00

The calculation big picture

• Total option premium: $0.50 + $0.79 per share = $1.29 per share
• Total credit on the sale of AAPL: $148.00 – $142.09 = $5.81 per-share
• Total per-share 3-week profit: $1.29 + $5.81 = $7.10 per-share
• % return = $7.10/$142.09 = 5.00% for the November 2022 contract

Discussion

When weekly options are available, circumventing earnings and ex-dividend dates are easy to accomplish, while significant option returns are still possible.

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EXPECTED PRICE MOVEMENT CALCULATOR

 

The Expected Price Movement Calculator is designed to generate an approximate projected trading range for the underlying security, specific for selected contract expiration date. The at-the-money implied volatility (IV) of the stock or ETF (exchange-traded fund) is used to achieve this valuable information.

Inherent in the spreadsheet is a conversion formula that recalibrates the annualized IV stat into one specific for the contract being traded. Easily accessed option-chain data is entered into the white cells at the top of the spreadsheet and calculations will appear in the yellow cells below.

Click here for informational video.

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