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Friday, September 1, 2017

Early Assignment of Kohl's Corporation Covered Calls

This morning I received both email and text notifications from my broker (Schwab) that the 5 Kohl's Corporation (ticker symbol KSS) Call options were exercised early, so the 500 shares of Kohl's stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $35.00 strike price. 

Early exercise by the owners of these Call options was expected since there was no time value remaining in these options.  So the owners exercised their option to buy the shares in order to capture the $.55 per share dividend that goes ex-dividend today.  The per share price had increased from $37.02 when this position was originally established (on August 17th) to $39.23 at yesterday's market close. 

As detailed below, the actual return-on-investment result achieved for this Kohl's position was a +1.4% absolute return (equivalent to +37.0% annualized return) for the 14 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.


Kohl's Corporation (KSS) -- Covered Calls Position Closed
The transactions were as follows:
08/17/2017  Bought 500 Kohl's shares @ $37.02
08/17/2017 Sold 5 KSS Sept 15, 2017 $35.00 Call options @ $2.52
Note: this was a simultaneous buy/write transaction.
08/31/2017 Five Call options exercised early (day prior to ex-dividend date) and stock sold at $35.00 strike price.

The overall performance result (including commissions) for this Kohl's covered calls position was as follows:
Covered Calls Position Cost Basis: $17,258.30
= ($37.02 -$2.52)*500 + $8.30 commissions

Net Profit:
(a) Options Income: +$1,260.00
= ($2.52*500 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$1,014.95
= ($35.00-$37.02)*500 shares - $4.95 commissions

Total Net Profit: +$245.05
= (+$1,260.00 options income +$0.00 dividends -$1,014.95 capital appreciation)

Absolute Return: +1.4%
= +$245.05/$17,258.30
Annualized Return: +37.0%
= (+$245.05/$17,258.30)*(365/14 days)

2 comments:

  1. Hi Jeff - enjoy reading your blog. Have you ever considered using a different broker (like IB) to reduce your commissions and further bump your returns.

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  2. Yes I have considered it, but I have been with Schwab over 30 years now and I like their complete services including high-quality personal customer support, low-cost ETFs, high-yield checking, StreetSmart Edge, 3rd-party research, custom stock and options screeners, and the flawless way they have executed IRS reporting of some reasonably complex situations over the years.

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