Early Assignment of Devon Energy Corp. and Qualcomm Inc. Covered Calls

Early this morning, the Covered Calls Advisor received email notifications from my broker (Schwab) that two Covered Calls positions [Devon Energy Corp. (DVN) and Qualcomm Inc. (QCOM)] were exercised early by the Call option owners.  The Covered Calls Advisor was pleased because the annualized return-on-investment (aroi) for early assignment is greater than the aroi if the Covered Calls would instead have remained in-the-money for both positions and therefore assigned at their June 18th, 2021 options expiration date.

As detailed below, the return-on-investment results were as follows:

• Devon Energy Corp. -- +2.6% absolute return (equivalent to +66.8% annualized return-on-investment for the 14 days this position was held).  This result exceeds the +48.8% that would have been achieved if this position had instead not been assigned until the June 18th, 2021 options expiration date.
  
• Qualcomm Inc. --  +1.4% absolute return (equivalent to +31.1% annualized roi for the 16 days this position was held).  This result exceeds the +21.4% that would have been achieved if this position had instead not been assigned until the June 18th, 2021 options expiration date.
  
  

1.  Devon Energy Corp. (DVN) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:
05/19/2021 Bought 400 Devon Energy Corp. shares @ $24.75
05/19/2021 Sold 4 DVN 6/18/2021 $22.00 Call options @ $3.30
Note 1: the Implied Volatility of the Calls was 51.2 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.55 per share = [$3.30 Call options premium - ($24.75 stock price - $22.00 strike price)].
06/01/2021 Early exercise of 4 DVN June 18th, 2021 $22.00 Call options, so 400 DVN shares were assigned (i.e. sold) at the $22.00 strike price.

The overall performance results (including commissions) for this Devon Energy Corp. Covered Calls position were as follows:
Covered Calls Cost Basis: $8,582.68
= ($24.75 - $3.30) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,320.00
= ($3.30 * 400 shares)
(b) Dividend Income (4 Call options exercised early on June 1st which was prior to the June 11th ex-div date): +$0.00

(c) Capital Appreciation: -$1,100.00
+($22.00 - $24.75) * 400 shares

Total Net Profit [DVN Call options exercised on June 1st (10 days prior to the June 11th ex-dividend date)]: +$220.00

= (+$1,320.00 options income +$0.00 dividend income -$1,100.00 capital appreciation)

 

Absolute Return (Four DVN Call options exercised early on June 1st, 2021): +2.6%

= +$220.00/$8,582.68

Annualized Return: +66.8%

= (+$220.00/$8,582.68)*(365/14 days)

2.  Qualcomm Inc. (QCOM) -- Covered Calls Position Closed by Early Assignment
The Covered Calls Advisor's original buy/write limit order at a net debit of $49.62 was transacted as follows:
05/17/2021 Bought 200 shares of Qualcomm stock @ $128.09 per share 
05/17/2021 Sold 2 Qualcomm June 18th, 2021 $120.00 Call options @ $9.71 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Call options was 32.0.
06/01/2021 Early exercise of 2 QCOM June 18th, 2021 $120.00 Call options, so 200 QCOM shares were assigned (i.e. sold) at the $120.00 strike price.

The overall performance results (including commissions) were as follows:
Covered Calls Cost Basis: $23,677.34
= ($128.09 - $9.71) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,940.66
= ($9.71 * 200 shares) - $1.34 commission
(b) Dividend Income (Qualcomm stock assigned on day prior to June 2nd ex-dividend date): +$0.00
(c) Capital Appreciation: -$1,618.00
= ($120.00 - $128.09) * 200 shares

Total Net Profit (Qualcomm stock assigned on day prior to June 2nd ex-dividend date): +$322.66
= (+$1,940.66 options income +$0.00 dividend income -$1,618.00 capital appreciation)

 Absolute Return (QCOM stock assigned on day prior to June 2nd ex-dividend date): +1.4%
= +$322.66/$23,677.34
Equivalent Annualized Return: +31.1%
= (+$322.66/$23,677.34) * (365/16 days)