Thursday, September 10, 2015

Early Exercise of General Motors Co Covered Calls

Today before market open, I received both an email and a phone call notification from my broker that the covered calls position in General Motors Co. (Ticker Symbol GM) with an Sep2015 expiration and at the $28.00 strike price was exercised early. The GM shares had risen from $28.77 when purchased to $29.62 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 $28.00 strike price in order to capture Thursday's (today's) quarterly ex-dividend payment of $.44 per share.

The actual return-on-investment result for this closed position was +1.7% absolute return (equivalent to +68.0% annualized return for the 9 day holding period).

The transactions associated with this General Motors Co position were as follows:
09/01/2015 Bought 300 GM shares @ $28.77
09/01/2015 Sold 3 GM Sep2015 $28.00 Call options @ $1.32
09/09/2015 Early exercise -- Sold 300 shares at $28.00 strike price

The overall performance result (including commissions) for this General Motors (GM) covered calls position is as follows:
Stock Purchase Cost: $8,639.95
= ($28.77*300+$8.95 commission)

Net Profit:
(a) Options Income: +$384.80
= ($1.32*300 shares) - $11.20 commissions
(b) Dividend Income (Option exercised early on Sept 9th): +$0.00
(c) Capital Appreciation (Stock assigned early on Sept 9th): -$239.95
+($28.00-$28.77)*300 - $8.95 commissions

Total Net Profit: +$144.85
= (+$384.80 options income +$0.00 dividend income -$239.95 capital appreciation)

Absolute Return: +1.7%
= +$144.85/$8,639.95
Annualized Return: +68.0%
= (+$144.85/$8,639.95)*(365/9 days)