Saturday, May 27, 2017

Early Assignment of Goldman Sachs Group Inc. Covered Calls

Goldman Sachs Group Inc. (ticker symbol GS) goes ex-dividend at $.75 per share on Tuesday morning (the next trading day since Monday is Memorial Day and the U.S. stock markets are closed then).  The Covered Calls Advisor owned a GS June 2017 covered calls position at the $205.00 strike price.  Early this morning (Saturday morning), I received email and text notifications from my broker (Schwab) that the 2 GS Call options were exercised early, so the 200 shares of GS stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $205.00 strike price. 

Details of the transactions and the result for this Goldman Sachs position are provided below.  The shares had risen from $216.70 when the position was originally established (on May 19th) to $223.53 at yesterday's market close.  There was no time value remaining in the Call options (based on the $18.53 midpoint of the $18.20/$18.85 bid/ask spread at the market close yesterday), so I was not surprised that the Call owners exercised their option to buy the shares in order to capture the dividend.  But I am not disappointed (instead I am very pleased) since this was the optimal result for this position because early assignment resulted in a higher annualized return-on-investment (see original post link for details) than if the position had instead been assigned on June 16, 2017 (the June 2017 options expiration date).

As detailed below, the actual return-on-investment result achieved for this Goldman Sachs position was a +0.6% absolute return (equivalent to +19.8% annualized return) for the 11 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new covered calls position is established, the details of which will be posted on this blog site the same day that it occurs. 

Goldman Sachs Group Inc. (GS) -- Position Closed
The transactions were:
05/19/2017 Bought 200 GS shares @ $216.70
05/19/2017 Sold 2 GS Jun2017 $205.00 Call options @ $13.05
Note: a simultaneous buy/write transaction was executed.
05/26/2017 Owner of Call options exercised their option and 200 shares were assigned at $205.00 strike price
Note: the price of GS was $223.53 at yesterday's (Friday's) market close

The performance result (including commissions) for this GS covered calls position was as follows:
Stock Purchase Cost: $43,344.95
= ($216.70*200+$4.95 commission)

Net Profit:
(a) Options Income: +$2,603.75
= ($13.05*200 shares) - $6.25 commissions
(b) Dividend Income (Options exercised early on May 26th which was the business day prior to the May 30th ex-div date): +$0.00
(c) Capital Appreciation: -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions

Total Net Profit: +$258.80
= (+$2,603.75 options income +$0.00 dividend income -$2,344.95 capital appreciation)

Absolute Return: +0.6%
= +$258.80/$43,344.95
Annualized Return: +19.8%
= (+$258.80/$43,344.95)*(365/11 days)