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Friday, September 8, 2017

Early Assignment of MGM Resorts International Covered Calls

This morning the Covered Calls Advisor received email, phone mail, and text notifications from my broker (Schwab) that the 7 MGM Resorts International (ticker symbol MGM) September 15th, 2017 Call options were exercised early, so the 700 shares of MGM stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $30.00 strike price. 

Early exercise by the owners of these Call options was plausible since there was only $0.04 per share [$4.03 midpoint of Call options bid/ask price - ($33.99 current stock price - $30.00 strike price)] time value remaining in these Call options.  So the Call owners were willing to immediately forego the remaining $0.04 per share time value by exercising their option to buy the shares (in order to capture today's $0.11 per share ex-dividend).  The per share stock price had increased from $31.56 when this MGM position was originally established on August 28th to $33.99 at yesterday's market close.

The Covered Calls Advisor preferred this early assignment outcome instead of keeping the Covered Calls position and capturing the $0.11 per share ex-dividend today since this early assignment resulted in higher annualized return-on-investment (+27.1% achieved) rather than if the position had instead been assigned on the September 15th options expiration date; which (including the $0.11 per share dividend) would have resulted in a +22.8% annualized ROI. Using the Dividend Capture Strategy spreadsheet has been working nicely recently.  In addition to this MGM position, recent early assignments in Kohl's, Intel, and JPMorgan Chase Covered Calls positions have achieved nice return-on-investment results. 

As detailed below, the actual return-on-investment result achieved for this MGM position was a +0.8% absolute return (equivalent to +27.1% 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 transactions details of which will be posted on this blog site the same day they occur.

MGM Resorts International -- Covered Calls Position Closed by Early Assignment
The transactions were as follows:
08/28/2017  Bought 700 MGM Resorts International shares @ $31.56
08/28/2017 Sold 7 MGM Sept 15, 2017 $30.00 Call options @ $1.81 and the implied volatility of these options was 29.2 when this buy/write transaction was executed.
09/07/2017 Seven Call options exercised early (day prior to ex-dividend date); so stock assigned (sold) at $30.00 strike price.
Note: the price of MGM was $33.99 when these Calls were exercised

The overall performance result (including commissions) was as follows:
Cost Basis of 7 Covered Calls in MGM: $20,834.64
= ($31.56 -$1.81)*700 + $9.64 commissions

Components of Net Profit:
(a) Options Income: +$1,267.00
= ($1.81*700 shares)
(b) Dividend Income: $0.00
(c) Capital Appreciation: -$1,096.95
= ($30.00-$31.56)*700 shares - $4.95 commissions

Total Net Profit (MGM assigned early on day prior to Sept 8th ex-dividend date) : +$170.05
= (+$1,267.00 options income +$0.00 dividends - $1,096.95 capital appreciation)

Absolute Return: +0.8%
= +$170.05/$20,834.64
Equivalent Annualized Return: +27.1%
= (+$170.05/$20,834.64)*(365/11 days)

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