Search This Blog

Thursday, November 30, 2017

Early Assignment of Two Bank of America Corp. Covered Calls Positions

This morning the Covered Calls Advisor received email and text notifications from my broker (Schwab) that both Covered Calls positions in Bank of America Corp. (ticker BAC) were assigned early.  As detailed below, these two positions were established on different dates, but both were established at the $25.00 strike price and for the December 15th expiration date.  This early assignment occurred because of today's ex-dividend of $.12 per BAC share.  With the stock price closing at $28.16 yesterday, the Dec 15th $25.00 Calls were well in-the-money, so the Call options owners exercised their options early to purchase the stock in order to capture today's dividend.

Early exercise by the owners of these Call options was plausible since there was $0.115 per share [$3.275 midpoint of Call options' $3.25/$3.30 bid/ask price - ($28.16 current stock price - $25.00 strike price)] time value remaining in these Call options.  The Call owners were willing to immediately forego the remaining $0.115 per share time value by exercising their option to buy the shares (in order to capture today's $0.12 per share ex-dividend). 

The Covered Calls Advisor preferred this early assignment outcome instead of keeping both of these Covered Calls positions and capturing the $0.12 per share ex-dividend today since these early assignments resulted in higher annualized return-on-investments rather than if the positions had instead not been assigned until the December 15th options expiration date.

As detailed below, the actual return-on-investment results achieved for these BAC Covered Calls positions was:
  • For Position #1:  A +1.1% absolute return (equivalent to +19.3% annualized return) for the 21 days this position was held.                                                                                               Note: This +19.3% annualized return-on-investment exceeds the +15.6% that would have been achieved if the position was instead exercised at the December 15th expiration. 
  • For Position #2:  A +1.4% absolute return (equivalent to +33.0% annualized return) for the 15 days this position was held.                                                                                       Note: This +33.0% annualized return-on-investment exceeds the +21.7% that would have been achieved if the position was instead exercised at the December 15th expiration. 

The Covered Calls Advisor's Dividend Capture Strategy spreadsheet has been working nicely.  In addition to these Bank of America positions, advantageous early assignments in recent months have occurred for Covered Calls positions in Las Vegas Sands, Goldman Sachs, PulteGroup, Kohl's, Intel, JPMorgan Chase, and MGM Resorts.  Consequently, the Covered Calls Advisor plans to continue to seek these types of investment opportunities.


1. Bank of America Corp. (BAC) -- Covered Calls Position #1 Closed
The transactions were as follows:
11/09/2017 Bought 1,000 shares of Bank of America stock @ $26.29 per share 
11/09/2017 Sold 10 Bank of America Dec 15th, 2017 $25.00 Call options @ $1.57 per share
Note: this was a simultaneous Buy/Write transaction
11/30/2017  10 BAC Dec 15th, 2017 $25.00 Call options exercised, so 1,000 shares of BAC stock sold at $25.00 strike price

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $24,731.65
= ($26.29 - $1.57)* 1,000 shares + $11.65 commission

Net Profit Components:
(a) Options Income: +$1,570.00
= ($1.57* 1,000 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation: -$1,294.95
= ($25.00 -$26.29)* 1,000 shares - $4.95 commission

Total Net Profit: +$275.05
= (+$1,570.00 options income +$0.00 dividend income -$1,294.95 capital appreciation)

Absolute Return: +1.1%
= +$275.05/$24,731.65
Equivalent Annualized Return: +19.3%
= (+$275.05/$24,731.65)*(365/21 days)


2. Bank of America Corp. (BAC) -- Covered Calls Position #2 Closed
The transactions were as follows:
11/15/2017 Bought 1,000 shares of Bank of America stock @ $25.83 per share 
11/15/2017 Sold 10 Bank of America Dec 15th, 2017 $25.00 Call options @ $1.17 per share
Note: this was a simultaneous Buy/Write transaction
11/30/2017  10 BAC Dec 15th, 2017 $25.00 Call options exercised, so 1,000 shares of BAC stock sold at $25.00 strike price

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $24,671.65
= ($25.83 - $1.17)* 1,000 shares + $11.65 commission

Net Profit Components:
(a) Options Income: +$1,170.00
= ($1.17* 1,000 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$834.95
= ($25.00 -$25.83)* 1,000 shares - $4.95 commission

Total Net Profit: +$335.05
= (+$1,170.00 options income +$0.00 dividend income -$834.95 capital appreciation)

Absolute Return: +1.4%
= +$335.05/$24,671.65
Equivalent Annualized Return: +33.0%
= (+$335.05/$24,671.65)*(365/15 days)

1 comment:

  1. DIS goes ex-Div on 12/8 for $0.84. It popped today, but I may try to get in before Friday for the Dec 15th expiration. Interested in your thoughts.

    ReplyDelete