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Thursday, August 3, 2017

Early Assignment of Intel Corp. Covered Calls

Early this morning I received both email and text notifications from my broker (Schwab) that the 6 Intel Corp. (ticker symbol INTC) Call options were exercised early, so the 600 shares of Intel stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $34.00 strike price. 

Details of the transactions and the result for this Intel position are provided below.  The per share price had increased from $34.65 when the position was originally established (on July 26th) to $36.64 at yesterday's market close.  This stock price increase is largely a result of what I like to call its 'trifecta earnings'.  Trifecta earnings is when the earnings report exceeds analysts' expectations on three key measures: (1) revenues, (2) earnings per share, and (3) forward guidance.  This occurred for Intel's earnings recently reported.  

The time value remaining in the Call options at the market close yesterday was only $.01; so as expected, the Call owners exercised their option to buy the shares in order to capture the dividend.  I  preferred this early assignment outcome instead of keeping the covered calls position and capturing the $.2725 per share ex-dividend today.  This is because early assignment resulted in substantially higher annualized return-on-investment (+53.2% achieved) rather than if the position had instead been assigned on the August 18th options expiration date which (including the $.2725 per share dividend) would have resulted in a +29.3% annualized ROI.
Using my Dividend Capture Strategy spreadsheet has been working nicely.  Last month, excellent early assignment results were achieved with a similar position in JPMorgan Chase & Co:
As detailed below, the actual return-on-investment result achieved for this Intel position was a +1.17% absolute return (equivalent to +53.2% annualized return) for the 8 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 of which will be posted on this blog site the same day they occur.

Intel Corp. -- Position Closed
The transactions were:
07/26/2017 Bought 600 INTC shares @ $34.65
07/26/2017 Sold 6 INTC Aug 18, 2017 $34.00 Call options @ $1.05
Note: a simultaneous buy/write transaction was executed.

08/02/2017 Six Call options exercised early (day prior to ex-dividend date) and stock sold at $34.00 strike price.

The overall performance result (including commissions) for this Intel covered calls position was as follows:
Covered Calls Position Cost Basis: $20,168.85
= ($34.65 stock price -$1.05 options price) *600 shares +$8.85 commissions

Net Profit:
(a) Options Income: +$630.00
= ($1.05*600 shares)
(b) Dividend Income (Call options exercised early on August 2nd, the business day prior to ex-div date): +$0.00
(c) Capital Appreciation (INTC assigned early): -$394.95
+($34.00-$34.65)*600 shares - $4.95 commissions

Total Net Profit: +$235.05
= (+$630.00 options income +$0.00 dividend income -$394.95 capital appreciation)

Absolute Return: +1.17%
= +$235.05/$20,168.85
Annualized Return: +53.2%
= (+$231.03/$20,168.85)*(365/8 days)

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