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Tuesday, December 5, 2017

Early Assignment of Schlumberger Ltd. Covered Calls Position

This morning the Covered Calls Advisor received email, phone mail, and text notifications from my broker (Schwab) that the 4 Schlumberger Ltd. (ticker symbol SLB) December 15th, 2017 Call options were exercised early, so the 400 shares of Schlumberger stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $60.00 strike price. 

Early exercise by the owners of these Call options was expected since there was only $.08 time value [$4.58 midpoint of Call options bid/ask price - ($64.50 current stock price - $60.00 strike price)] remaining in these Call options.  So, the Call owners were willing to immediately forego the remaining $0.08 per share (by exercising their option to buy the shares) in order to capture today's $0.50 per share ex-dividend.  The per share stock price had increased from $61.37 when this Schlumberger position was originally established on November 27th to $64.50 (7.6% in-the-money) at yesterday's market close.

The Covered Calls Advisor preferred this early assignment outcome instead of keeping the Covered Calls position and capturing the $0.50 per share ex-dividend today since this early assignment resulted in higher annualized return-on-investment (+33.5% achieved) rather than if the position had instead been assigned on the December 15th options expiration date; which (including the $0.50 per share dividend) would have resulted in a slightly lower +30.2% annualized ROI.  This +33.5% result was the maximum possible return result that could have been achieved when this position was established.

Using the Dividend Capture Strategy spreadsheet has been working nicely recently.  In addition to this Schlumberger position, recent early assignments in Bank of America (2 positions), MGM Resorts, Kohl's, Intel, JPMorgan Chase, PulteGroup, and Goldman Sachs Covered Calls positions have achieved annualized return-on-investment results of 19.3%, 33.0%, 27.1%, 37.0%, 53.2%, 16.1%, 15.6%, and 19.8% respectively. 

As detailed below, the actual return-on-investment result achieved for this Schlumberger position was a +0.73% absolute return (equivalent to +33.5% annualized return) for the 9 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.

Schlumberger Ltd. -- Covered Calls Position Closed by Early Assignment
The transactions were as follows:
11/27/2017  Bought 400 Schlumberger Ltd. shares @ $61.37
11/27/2017 Sold 4 SLB Dec 15, 2017 $60.00 Call options @ $1.82
12/04/2017 Four Call options exercised early (day prior to ex-dividend date); so stock assigned (sold) at $60.00 strike price.
Note: the closing price of Schlumberger stock was $64.50 when these Calls were exercised

The overall performance result (including commissions) was as follows:
Cost Basis of 4 Covered Calls in SLB: $21,287.41
= ($61.37 -$1.82)*400 shares + $7.63 commissions

Components of Net Profit:
(a) Options Income: +$728.00
= ($1.82*400 shares)
(b) Dividend Income: $0.00
(c) Capital Appreciation: -$552.95
= ($60.00-$61.37)*400 shares - $4.95 commissions

Total Net Profit (Schlumberger stock assigned early on day prior to Dec. 5th ex-dividend date) : +$175.05
= (+$728.00 options income +$0.00 dividends - $552.95 capital appreciation)

Absolute Return: +0.73%
= +$175.05/$21,287.41
Equivalent Annualized Return: +33.5%
= (+$175.05/$21,287.41)*(365/9 days)

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