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Saturday, August 15, 2015

Early Exercise of Chevron Corporation Covered Calls Position

Early this morning I received both an email and a phone call notification from my broker that the covered calls position in Chevron Corporation (Ticker Symbol CVX) with an Aug2015 expiration and at the $84.00 strike price was exercised early. The Chevron shares had risen from $85.24 when purchased to $85.99 at yesterday's market close and the time value remaining in the call option had declined to only about $.05; so the owner of the Call options exercised his/her option to buy the shares at the $84.00 strike price in order to capture Monday's quarterly ex-dividend payment of $1.07 per share.

The actual return-on-investment result for this closed position was 0.5% absolute return (equivalent to +44.2% annualized return for the 4 day holding period).

The transactions associated with this Chevron Corporation position were as follows:
08/12/2015 Bought 200 CVX shares @ $85.24
08/12/2015 Sold 2 CVX Aug2015 $84.00 Call options @ $1.75
08/15/2015 Sold 200 CVX shares assigned @ $84.00

The performance result (including commissions) for this Chevron (CVX) covered calls position was as follows:
Stock Purchase Cost: $17,056.95
= ($85.24*200+$8.95 commission)

Net Profit:
(a) Options Income: +$339.55
= ($1.75*200 shares) - $10.45 commissions
(b) Dividend Income (Option exercised early on business day prior to Aug 17th ex-div date): +$0.00;
(c) Capital Appreciation [Stock assigned early on Aug 14th (business day prior to Aug 17th ex-div date)]: -$256.95
+($84.00-$85.24)*200 - $8.95 commissions
Total Net Profit: +$82.60
= (+$339.55 +$0.00 -$256.95)

Absolute Return: +0.5%
= +$82.60/$17,056.95
Annualized Return on Investment: +44.2%
= (+$82.60/$17,056.95)*(365/4 days)