Details of the transactions and results for this GM position are provided below. The shares had risen from $36.90 when purchased (on Feb 28th) to $37.52 at yesterday's market close. The time value remaining in the Call options had declined to $0.02 (based on the $1.54 midpoint of the $1.53/$1.55 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 to purchase the 1,000 shares in order to capture the $.38 dividend. In this advisor's experience, early assignment normally occurs only in those relatively deep-in-the-money positions (note: GM was 4.2% in-the-money at market close yesterday) when the Call options time value remaining near the end of trading on the day prior to the ex-div date is $.10 or less and the ex-dividend amount ($.38 in this case) is much greater than the time value the Call buyer forfeits ($.02 in this GM case). It is also interesting to observe that the Pulte Mar2017 covered calls position (which also went ex-dividend today), also, just like the GM position, had only $.02 of time value remaining -- but those Calls were not exercised (likely because today's ex-dividend amount for Pulte is only $.09).
The actual return-on-investment result for this closed position was a +0.8% absolute return (equivalent to +33.6% annualized return) for the 9 days holding period. This result was slightly below the +37.7% annualized ROI that would have occurred if the covered calls had instead been held until expiration and if the options were exercised then.
General Motors Co. (GM) -- Covered Calls Position Closed
02/28/2017 Bought 1,000 GM shares @ $36.90
02/28/2017 Sold 10 GM Mar2017 $36.00 Call options @ $1.22
Note: a simultaneous buy/write transaction was executed.
03/07/2017 10 Call options exercised and 1,000 shares GM stock sold at $36.00 strike price
The overall performance result (including commissions) for this General Motors covered calls position were as follows:
Stock Purchase Cost: $36,906.95
= ($36.90*1,000+$6.95 commission)
(a) Options Income: +$1,213.00
= ($1.22*1,000 shares) - $7.00 commissions
(b) Dividend Income (Options exercised early on business day prior to Mar 8th ex-div date): +$0.00