Sell V Nov 20 200 call at $10.00 or higher
Expiration date: November 20 Strike price: $200
Call price: $10 or higher
On the day of the last issue, in which Visa (V) was highlighted (September 23), the closing price was 195.37 per share. After trending down for most of September, the market has rallied for two straight days in a row. However, there are still risks regarding the election and virus that will likely weigh on stocks for the next couple of months.
V has moved up to over 200 per share on the rally. It’s a good time to lock in a high call premium at a strike price just slightly in-the-money while the market is still in such a good mood. Here are the return scenarios assuming a 195.37 purchase price:
1. The stock goes above $200
Call premium: $10.00
Dividend $0.30 (ex-date 11-15)
Appreciation: $4.63 ($200 strike price minus $195.37 purchase price)
Total: $14.93 (total return will be 7.6% in seven weeks)
2. The stock price stays the same
Call premium: $10.00
Dividend $0.30
Total: $10.30 (total return will be 5.3% in seven weeks)
3. The stock price declines
You will be down by however much the stock is down less the $10.30 from the dividend and the call. And the position will live to pay more dividends and write more calls in the future.
