The Automatic Data Processing, Inc. (ADP) November 2019 $180 covered calls have just expired worthless meaning I retain the underlying shares and 100% of the option premium (net of nominal trading commission) I collected when I wrote the covered calls in August.
In this brief article I look at whether I should write new covered call contracts to generate additional income.
In my August 16th Automatic Data Processing, Inc. (ADP) article I disclosed that I had written several November 2019 $180 covered call contracts in a retirement account for which I do not disclose details.
ADP's ~$171 share price as at the November 15th market close means I retain the underlying shares and the option expire worthless. In dollars and cents....I retain the $2.30/share I collected when I wrote the contracts less the negligible trading commission at the time of the trade.
By retaining the underlying shares I can now benefit from the recently announced dividend increase ($0.12/share increase in the quarterly cash dividend to $0.91/share/quarter or $3.64/share/year).
On the same day of the dividend increase announcement, we learned that ADP's board of directors has authorized the purchase of $5B of the company's common stock.
When I wrote the November 2019 $180 covered call contracts in mid-August (3 month contracts), ADP was trading at ~$167 (a ~$13 share variance) and I collected $2.30/share (before commission).
Now, ADP is trading at ~$171 and a $185 February 21, 2020 (3 month contracts) (a ~$14 share variance) would only generate $1.40/share (before commission).
As you can see, the potential return is not the same as a few months ago. I am certainly open to initiating new out-of-the-money covered calls but will bide my time until the potential return becomes more attractive.
I hope you enjoyed this post and I wish you much success on your journey to financial freedom.
Thanks for reading!
Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to [email protected].
Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.
Disclosure: I am long ADP.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.