Friday, June 2, 2017

Early Close of General Motors Covered Calls

Today, the Covered Calls Advisor closed out the General Motors Co. (ticker symbol GM) covered calls position.  This decision was made since the price of GM has risen quickly from the $32.20 purchase price to $34.27 today so that there was only $.02 of time value remaining in the Call options.  Thus, the overwhelming majority of the maximum potential profit has already been achieved with 4 days remaining until the ex-div date and 14 days remaining until the Jun2017 options expiration date.  It is highly likely the Call options would have been exercised early on Monday in which case an annualized return-on-investment result (as shown in the post describing the original position here: link )would be +33.6%.

The actual return-on-investment result for this closed position was a +1.1% absolute return (equivalent to +50.2% annualized return) for the 8 days holding period.  This 50.2% annualized return result was higher than the +33.6% annualized ROI that would have occurred if the covered calls had instead been exercised next Monday (the day prior to the GM ex-div date).

The details achieved from closing this GM position today are as follows:

General Motors Co. (GM) -- Covered Calls Position Closed
The transactions were:
05/25/2017 Bought 400 GM shares @ $32.20
05/25/2017 Sold 4 GM Jun2017 $31.50 Call options @ $1.10
Note: a simultaneous buy/write transaction was executed.
06/07/2017 Upcoming ex-dividend of $.38 per share
06/02/2017 Sold 400 GM shares @ $34.27
06/02/2017 Bought-to-Close 4 GM Jun2017 $31.50 Call options @ $2.79
Note: this was a simultaneous covered calls unwind transaction

The overall performance result (including commissions) for this General Motors covered calls position were as follows:
Stock Purchase Cost: $12,884.95
= ($32.20*400+$4.95 commission)

Net Profit:
(a) Options Income: -$681.20
= ($1.10-$2.79) *400 shares) - $5.20 commissions
(b) Dividend Income: +$0.00;
(c) Capital Appreciation (GM stock sold at $34.27 on June 2nd): +823.05
+($34.27-$32.20)*400 - $4.95 commissions
 Total Net Profit: +$141.85
= (-681.20 options income +$0.00 dividend income +$823.05 capital appreciation)

 Absolute Return: +1.1%
= +$141.85/$12,884.95
Annualized Return: +50.2%
= (+$141.85/$12,884.95)*(365/8 days)