Early Assignment of Fifth Third Bank and Pioneer Natural Resources Co.

Early this morning, the Covered Calls Advisor received email notifications from my broker (Schwab) that two Covered Calls positions [Fifth Third Bank (FITB) and Pioneer Natural Resources Co. (PXD)] were exercised early by the Call option owners.  As is normally the case, both early assignments occurred on the last business day prior to their ex-dividend dates when the stock prices were deep in-the-money and there was close to $0.00 time value remaining in the Call options.  The Covered Calls Advisor was pleased because the annualized return-on-investment (aroi) for both positions for early assignment was greater than the aroi if the Covered Calls would instead have been in-the-money and therefore assigned on their October 15th, 2021 options expiration date.

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

• Fifth Third Bank -- +1.1% absolute return (equivalent to +45.6% annualized return-on-investment for the 9 days this position was held).  This result exceeds the +27.3% that would have been achieved if this position had instead not been assigned until the October 15th, 2021 options expiration date.
  
• Pioneer Natural Resources Co. --  +2.3% absolute return (equivalent to +117.7% annualized roi for the 7 days this position was held).  This result exceeds the +40.3% that would have been achieved if this position had instead not been assigned until the October 15th, 2021 options expiration date.
  
  

1.  Fifth Third Bank (FITB) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:

09/20/2021 Bought 400 Fifth Third Bank shares @ $38.54
09/20/2021 Sold 4 FITB 10/15/2021 $36.00 Call options @ $2.94
Note 1: the Implied Volatility of the Calls was 33.7 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.40 per share = [$2.94 Call options premium - ($38.54 stock price - $36.00 strike price)].
09/29/2021 Early exercise of 4 FITB October 15th, 2021 $36.00 Call options, so 400 FITB shares were assigned (i.e. sold) at the $36.00 strike price.

The overall performance results (including commissions) for this Fifth Third Bank Covered Calls position were as follows:
Covered Calls Cost Basis: $14,242.68
= ($38.54 - $2.94) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,176.00
= ($2.94 * 400 shares)
(b) Dividend Income (4 FITB Call options exercised early on Sept 28th the last day prior to the Sept 29th ex-dividend ex-div date): +$0.00

(c) Capital Appreciation: -$1,016.00
+($36.00 - $38.54) * 400 shares

Total Net Profit [FITB Call options exercised early]: +$160.00

= (+$1,176.00 options income +$0.00 dividend income -$1,016.00 capital appreciation)

 

Absolute Return (Four FITB Call options exercised early on Sept 28th, 2021): +1.1%

= +$160.00/$14,242.68

Annualized Return: +45.6%

= (+$160.00/$14,242.68)*(365/9 days)

2.  Pioneer Natural Resources Company (PXD) -- Covered Call Position Closed by Early Assignment
The buy/write transaction was as follows:
9/22/2021 Bought 100 shares of Pioneer Natural Resources @ $150.43 per share 
9/22/2021 Sold 1 PXD Oct. 15th, 2021 $145.00 Call option @ $8.63 per share
Note: the Implied Volatility of this Call option was 35.0 when this position was established.
09/29/2021 Early exercise of 1 PXD October 15th, 2021 $145.00 Call option, so 100 PXD shares were assigned (i.e. sold) at the $145.00 strike price.
 
The overall performance results (including commissions) were as follows:
Covered Call Cost Basis: $14,180.67
= ($150.43 - $8.63) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$863.00
= ($8.63 * 100 shares)
(b) Quarterly Dividend Income (1 PXD Call option exercised early on Sept 28th the last day prior to the Sept 29th ex-dividend ex-div date): +$0.00
(c) Capital Appreciation: -$543.00
= ($145.00 -$150.43) * 100 shares

Total Net Profit: +$320.00 = ($863.00 options income +$0.00 dividend income -$543.00 capital appreciation)

Absolute Return-on-Investment: +2.3%
= +$320.00/$14,180.67
Equivalent Annualized Return-on-Investment: +117.7%
= (+$320.00/$14,180.67)*(365/7 days)