The Covered Calls Advisor had an Eli Lilly and Company (ticker LLY) November 2016 covered calls position at the $75 strike price. Early this morning, I received email notification from my broker (Schwab) that the 4 LLY Call options were exercised early, so the 400 shares of Lilly stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $75 strike price.
of the transactions and results for this Eli Lilly covered calls position are provided below. The LLY shares had risen from $76.76 when purchased (on October 26th) to $78.39 at
yesterday's market close. The time value remaining in the Call options
had declined to $0.00 (based on the midpoint of the $3.20/$3.55 bid/ask spread at
the market close yesterday) -- so it was expected that the owner of the Call options would exercise his/her option early in order to purchase the 400 shares and thus capture the dividend. In this advisor's experience, early
assignment normally occurs only in those relatively deep-in-the-money
positions when there is less than $.15 time value remaining near the end
of trading on the day prior to the ex-div date.
As detailed below, the actual return-on-investment result for this closed position was a +1.3% absolute return (equivalent to +32.7% annualized return) for the 14 days holding period. This result was slightly better than the 30.4% annualized ROI that would have occurred if the covered calls had instead been held until expiration and if the options were exercised then.
The transactions history was as follows:
10/26/2016 Sold 4 LLY Nov2016 $75.00 Call options @ $2.75
Note: a simultaneous buy/write transaction was executed.
11/10/2016 Quarterly ex-dividend of $.51 per share
4 LLY Call options assigned and associated 400 LLY shares sold at $75.00
strike price. Note: the price of LLY stock was $78.39 at yesterday's
The overall performance result (including commissions) for this Eli Lilly covered calls position was as follows:
Stock Purchase Cost: $30,711.95
= ($76.76*400+$7.95 commission)
(a) Options Income: +$1,097.00
= ($2.75*400 shares) - $3.00 commissions
(b) Dividend Income (Call options exercised early on business day prior to Nov 10th ex-div date): +$0.00
= (+$385.05/$30,711.95)*(365/14 days)
The cash now available from the closing of this Lilly covered calls position will be
retained in the Covered Calls Advisor Portfolio until new covered calls
and/or 100% cash-secured puts positions are established. Any new
positions will be posted on this site on the same day they occur.