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Tuesday, June 6, 2017

Early Assignment of PulteGroup Inc. Covered Calls

PulteGroup Inc. (ticker symbol PHM) goes ex-dividend today at $.09 per share.  The Covered Calls Advisor owned a Pulte June 2017 covered calls position at the $22.00 strike price.  Early this morning (Tuesday morning), I received email and text notifications from my broker (Schwab) that the 10 PHM Call options were exercised early, so the 1,000 shares of PHM stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $22.00 strike price. 

Details of the transactions and the result for this Pulte position are provided below.  The per share price had increased from $22.80 when the position was originally established (on May 12th) to $23.31 at yesterday's market close.  The time value remaining in the Call options (based on the $1.40 midpoint of the $1.37/$1.43 bid/ask spread at the market close yesterday) was $.09 [$1.40- ($23.31- $22.00)] and the Call owners exercised their option to buy the shares in order to capture the dividend.  I am pleased since this early assignment resulted in a slightly 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 PulteGroup position was a +1.1% absolute return (equivalent to +15.6% annualized return) for the 25 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 transactions details will be posted on this blog site the same day that they occur. 

PulteGroup Inc. (PHM) -- Position Closed
The transactions were as follows:
05/12/2017 Bought 1,000 Pulte shares @ $22.80
05/12/2017 Sold 10 Pulte Jun2017 $22.00 Call options @ $1.06
Note: a simultaneous buy/write transaction was executed.
06/05/2017 10 PHM Jun2017 Call options exercised, so 1,000 shares of PHM sold at $22.00 strike price

The performance result (including commissions) for this Pulte covered calls position were as follows:
Stock Purchase Cost: $22,804.95
= ($22.80*1,000+$4.95 commission)

Net Profit:
(a) Options Income: +$1,048.55
= ($1.06*1,000 shares) - $11.45 commissions
(b) Dividend Income (stock assigned on day prior to June 6th ex-div date): +$0.00
(c) Capital Appreciation: -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions

Total Net Profit (Pulte stock assigned early on June 5th): +$243.60
= (+$1,048.55 options income +$0.00 dividend income -$804.95 capital appreciation)

Absolute Return: +1.1%
= +$243.60/$22,804.95
Annualized Return: +15.6%
= (+$243.60/$22,804.95)*(365/25 days)