Covered Call on BAC - Potential income return 3.52% in 5 days

On June 8, 2020, we bought on margin 102 shares of BAC stock (Bank of America)  paying $28.655 per share and simultaneously sold June 12, 2020 expiry covered call at the strike price of $29 for what we got a premium of $0.66 (before commissions)

This trade comes as the fifth in the month of June, and if we stick with our trading plan for this month, premium generated from this trade makes us about 10.6% from our $600 monthly goal, while in total we have already reached 42.5% from our goal in the first 8 days of June. Awesome.

This is also our first covered call with BAC - in the past, we have been trying to collect 100 shares of BACto start selling covered calls.. So far we had collected 21 shares of BAC stock.

After the good experience with other bank stock - WFC, when we realized $70 in just 3 days I decided to apply the same, buy on margin, tactic for BAC stock.

Closed WFC Covered Call with +$70 Profit (2.51% yield in 3 days)

And so - in case our 100 shares will get called away this Friday, our share count will increase +2, or we will have 23 shares, as we bought 102 today. 77 to go and we will have 100 shares to sell covered calls not using margin. Nice

With a dividend at $0.72, this buy gives as a 2.51% dividend yield. Dividends are paid in the following months: March, June, September, December. 100 shares could net you $72 yearly (before tax). Our in our case +2 shares will give us a little yearly dividend boost of +$1.44

here is our trade setup:

  • BOT 102 BAC Stock 28.665 USD 
  • SLD  1 BAC JUN 12 '20 29 Call Option 0.66

what can happen next:

If BAC is trading below our strike price of $29 at expiry date (June 12, 2020) we keep the premium and sell more covered calls to lower our cost basis. As BAC is a dividend stock, in the worst case we keep the stock to collect the dividend and wait for the stock to recover.

In case BAC is trading above our strike price of $29, our shares get called away at strike price $29 and we realize our max gain $101, or 3.52% potential income in 5 days

Break-even price: $28.00

Selling covered calls with BAC stock
Selling covered calls with BAC stock
  • Running Total  2 Trades since June 8, 2020
  • Trade P/L $64, with capital at risk $2,867
  • 2.23% income from premium
  • Potential max return if shares called away: 3.52% in 5 days