Details for the $29 covered calls position are provided below. The General Motors shares had risen from $29.96 when purchased to $30.30 at yesterday's market close and the time value remaining in the call option had declined to $.37 (based on the midpoint of the bid/ask spread at the market close yesterday). Given that the stock price declines at market open today by the $.38 ex-div amount, I was somewhat surprised that the owner of the Call options exercised his/her option early since they immediately forfeited the remaining $.37 time value to purchase the shares (and capture the dividend). In this advisor's experience, early assignment normally occurs only in those uncommon deep-in-the-money positions when there is less than $.10 time value remaining near the end of trading on the day prior to the ex-div date. But as covered calls investors, we are grateful to receive the immediate gift ($.37 per share in this instance) when it does occur.
As detailed below, the actual return-on-investment result for this closed position was a +0.6% absolute return (equivalent to +30.6% annualized return for the 7 days holding period).
The transactions were:
03/02/2016 Bought 300 GM shares @ $29.96
03/02/2016 Sold 3 GM Mar2016 $29.00 Call options @ $1.17
Note: a simultaneous buy/write transaction was executed.
03/09/2016 Upcoming ex-dividend of $.38 per share
03/09/2016 3 GM Call options assigned and associated 300 GM shares sold at $29.00 strike price. Note: the price of GM stock was $30.30 at yesterday's market close.
The overall performance result (including commissions) for this GM covered calls position was as follows:
Stock Purchase Cost: $8,995.95
= ($29.96*300+$7.95 commission)
(a) Options Income: +$348.75
= ($1.17*300 shares) - $2.25 commissions
(b) Dividend Income (Call options exercised early on business day prior to Mar 9th ex-div date): +$0.00