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Friday, January 1, 2016

Early Exercise of JPMorgan Chase & Co. Covered Calls

Early this morning, I received notification from my broker that the covered calls position in JPMorgan Chase & Co. (Ticker Symbol JPM) with a Jan2016 expiration and at the $62.50 strike price was exercised early. The JPMorgan shares had risen from $64.77 when purchased to $66.03 at yesterday's market close and the time value remaining in the call option had declined to less than $.10; so the owner of the Call options exercised his/her option to buy the shares at the $62.50 strike price in order to capture Monday's quarterly ex-dividend payment of $.44 per share.

The actual return-on-investment result for this closed position was a +1.6% absolute return (equivalent to +23.9% annualized return for the 24 days holding period).

The transactions associated with this JPMorgan position were as follows:
12/11/2015 Bought 200 JPM shares @ $64.77
12/11/2015 Sold 2 JPM Jan2016 $62.50 Call options @ $3.32
12/31/2015 Early exercise of Call options; so 200 JPM shares sold at $62.50 strike price.

The overall performance result (including commissions) for this JPMorgan Chase & Co.(JPM) covered calls position were:
Stock Purchase Cost: $12,961.95
= ($64.77*200 +$7.95 commission)

Net Profit:
(a) Options Income: +$665.50
= ($3.32*200 shares) - $1.50 commissions

(b) Dividend Income (JPM stock assigned on last business day prior to Jan 4, 2016 ex-dividend date): +$0.00

(c) Capital Appreciation (stock assigned early on Dec 31st): -$461.95
+($62.50 -$64.77)*200 - $7.95 commissions; or

Total Net Profit (options exercised on last business day prior to Jan 4th ex-div date): +$203.55
= (+$665.50 +$0.00 -$461.95)

Absolute Return (options exercised on last business day prior to ex-div date): +1.6%
= +$203.55/$12,961.95
Annualized Return: +23.9%
= (+$203.55/$12,961.95)*(365/24 days)