Wednesday, November 5, 2014

Early Exercise of Boeing Covered Call Position

Today, I received notification that the Covered Calls Advisor's covered call position in Boeing Company (Ticker Symbol BA) with a Nov2014 expiration and at the $120.00 strike price was exercised early. The shares of Boeing had risen to $125.11 as of yesterday's close, so the time value remaining in the call option had declined to the point where the owner of the option decided to exercise his/her option to buy the shares at $120.00 in order to capture today's quarterly ex-dividend payment of $.73 per share.

10/22/2014 Bought 100 BA shares @ $122.579
10/22/2014 Sold 1 BA Nov2014 $120.00 Call Option @ $4.60
Note: the price of BA was $122.90 today when this Call option was sold.
11/4/2014 Short call option assigned; so sold 100 BA shares @ $120.00

The actual return-on-investment result for this closed position was 1.5% absolute return (equivalent to +39.0% annualized return for the 14 day holding period).

As is often the case, early assignment provides a higher annualized return than if the position had been assigned at Nov2014 expiration, so this is the Covered Calls Advisor's preferred outcome.

The details of the overall performance result (including commissions) for this Boeing Co. (BA) covered calls position were as follows:
Stock Purchase Cost: $12,266.85
= ($122.579*100+$8.95 commission)

Net Profit:
(a) Options Income: +$450.30
= ($4.60*100 shares) - $9.70 commissions
(b) Dividend Income (Option exercised early on day prior to Nov 5th ex-div date): +$0.00
(c) Capital Appreciation (stock assigned early on Nov 4th): -$266.85
+($120.00-$122.579)*100 - $8.95 commissions

Total Net Profit (Early exercise on day prior to Nov 5th ex-div date): +$183.45
= (+$450.30 +$0.00 -$266.85)

Actual Return-on-Investment:
1. Absolute Return: +1.5%
= +$183.45/$12,266.85
2. Annualized Return: +39.0%
= (+$183.45/$12,266.85)*(365/14 days)