Covered Calls Advisor: Early Assignment of Lincoln National Corporation Covered Calls

Friday, January 8, 2021

Early Assignment of Lincoln National Corporation Covered Calls

This morning the Covered Calls Advisor was notified by Schwab that the three Lincoln National Corp. January 15th, 2021 $45.00 Call options were exercised early yesterday (on January 7th, 2021), the last business day prior to today's (January 8th) ex-dividend date. There was $.07 time value [$7.70 midpoint of $7.50/$7.90 bid/ask range - ($52.63 stock price - $45.00 strike price)] remaining in the Call options, so the owner of the Calls exercised their right to buy the 300 shares of LNC at the $45.00 strike price and capture today's (January 8th) $.42 ex-dividend.

As detailed below, a very attractive +2.8% absolute return in 21 days (equivalent to a +48.4% annualized return-on-investment) was achieved for this position. The Covered Calls Advisor was pleased with this result since the annualized return of +48.4% that has been achieved slightly exceeded the +47.1% annualized roi that might have been achieved in the future if the stock price remains above the strike price on the January 15th expiration date and therefore the stock would instead be assigned then.

Lincoln National Corp. (LNC) -- Covered Calls Early Assignment
The buy/write transaction was:
12/18/2020 Bought 300 Lincoln National shares @ $48.08
12/18/2020 Sold 3 LNC 01/15/2021 $45.00 Call options @ $4.30
Note: Implied Volatility (IV) of the Call options was at a very attractive level of 46.6 when this position was transacted. A criteria of the Covered Calls Advisor is that the IV in individual companies should exceed that of the S&P 500 Volatility Index (VIX) -- which was only 21.8 today when this position was established today.
01/08/2021 Early exercise of 3 LNC Jan. 15th, 2021 $45.00 Call options, so 300 LNC shares were assigned (i.e. sold) at the $45.00 strike price.

The overall performance results (including commissions) for this Lincoln National Covered Calls position were as follows:
Covered Calls Cost Basis: $13,136.01
= ($48.08 - $4.30) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,290.00
= ($4.30 * 300 shares)
(b) Dividend Income (Options exercised early on Jan.7th, the business day prior to the Jan. 8th ex-div date): +$0.00
(c) Capital Appreciation: -$924.00
+($45.00 - $48.08) * 300 shares