Early Assignment of Occidental Petroleum Covered Calls

Early this morning I received email and text notifications from my broker (Schwab) that all 4 Occidental Petroleum Corp. (ticker symbol OXY) Call options were exercised early, so the 400 shares of Occidental Petroleum stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $40.00 strike price. 

Details of the transactions and the results for this Occidental Petroleum position are provided below.  When this Covered Calls position was established, the time value (i.e. extrinsic value) was $.55 = [$2.56 options premium - ($42.01 stock price - $40.00 strike price).  By yesterday's market close (the last business day prior to the ex-dividend date which is Monday, Sept 9th), the time value had declined to $0.00, so the full $.55 options income profit per share potential was achieved upon the early assignment closing of this position.  The per share price had increased from $42.01 when the position was originally established (on August 26th) to $45.46 at yesterday's market close.  Because the time value remaining in the Call options had declined to $0.00 at Friday's (Sept. 6th) market close, the owner of the Calls exercised their option to buy the shares at the $40.00 strike price in order for them to capture the $.79 dividend.  As detailed below, this early assignment provided an attractive return-on-investment (roi) result: +1.4% absolute return (equivalent to +38.2% annualized roi for the 13 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.  As always, the transactions details will be posted on this blog site the same day that they occur.

The detailed results for this Occidental Petroleum position are provided below.


Occidental Petroleum Corp. (OXY) -- Early Assignment of OXY Covered Calls Position

The transactions were:
08/26/2019 Bought 400 Occidental Petroleum shares @ $42.01
08/26/2019 Sold 4 OXY 09/20/2019 $40.00 Call options @ $2.56
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 174 contracts and the Implied Volatility was very attractive at 40.3 considering the large size and relative predictability of Oxy's business.
09/06/2019 Early exercise of 4 OXY Sept 20th, 2019 $40.00 Call options, so 400 OXY shares assigned (i.e. sold) at $40.00 strike price.

The overall performance result (including commissions) for this Occidental Petroleum Covered Calls position is as follows:
Covered Calls Cost Basis: $15,787.63
= ($42.01 - $2.56) *400 shares + $7.63 commissions

Net Profit Components:
(a) Options Income: +$1,024.00
= ($2.56 *400 shares)
(b) Dividend Income (Call options exercised early on Sept 6th, the business day prior to Sept 9th ex-dividend date): +$0.00

(c) Capital Appreciation (OXY assigned early on Sept 6th): -$808.95
+($40.00 -$42.01) *400 shares - $4.95 commissions

Total Net Profit [Options exercised on Sept 6th (business day prior to Sept 9th ex-dividend date)]: +$215.05

= (+$1,024.00 +$0.00 -$808.95)

Absolute Return: +1.4%

= +$215.05/$15,787.63

Annualized Return: +38.2%

= (+$273.71/$13,224.95)*(365/13 days)