Thursday, April 16, 2015

Early Exercise of JPMorgan Chase Co. Covered Calls Position

This morning prior to market open, notification was received from my broker via both email and phone message that the covered calls position in JPMorgan Chase Co. (Ticker Symbol JPM) with a Apr2015 expiration and at the $60.00 strike price was exercised early. The shares of JPMorgan had risen to $64.21 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 $60.00.

The actual return-on-investment result for this closed position was 1.7% absolute return (equivalent to +22.4% annualized return for the 28 day holding period).  Early assignment provides a somewhat higher annualized return than if the position had been assigned two days later (at Apr2015 expiration), so this is desirable outcome for this position.

The details of the overall performance result (including commissions) for this JPMorgan covered calls position was as follows:
Stock Purchase Cost: $12,260.95
= ($61.26*200+$8.95 commission)

Net Profit:
(a) Options Income: +$391.55
= ($2.01*200 shares) - $10.45 commissions

(b) Dividend Income: +$80.00
= ($.40 dividend per share x 200 shares); or
(c) Capital Appreciation (If options exercised at $60.00 at Apr2015 expiration): -$260.95
+($60.00-$61.26)*200 - $8.95 commissions

Total Net Profit (stock sold at $60.00 based on early exercise of options): +$210.60
= (+$391.55 +$80.00 -$260.95)

Absolute Return: +1.7%
= +$210.60/$12,260.95
Annualized Return: +22.4%
= (+$210.60/$12,260.95)*(365/28 days)