Last Monday (August 28th, 2023), a Covered Calls position was established in Halliburton Company (ticker HAL) at the $37.00 strike price and for the September 15th, 2023 options expiration date. The stock price has increased from $38.40 when purchased to $40.83 today. Since today is Halliburton's quarterly ex-dividend date, I will also receive the $.16 per share dividend payment which is included in the return-on-investment results detailed below.
I have a "Rule-of-Thumb for Early Close" table (shown below), and this Halliburton Covered Calls position exceeded the minimum annualized-return-on-investment (aroi) threshold for closing out a position early. This position has been held for 8 days now and there were 18 days total duration until the 9/15/2023 options expiration date which corresponds to category #3 in the rules table below. The category #3 decision criteria is that the aroi if closed early should be at least 60% higher than the aroi if the position was to instead be assigned on the Sept. 15th options expiration date, which is +34.3% for this Halliburton Covered Calls position. Therefore, the minimum aroi threshold for early close out is +54.9% (60% above the +34.3% aroi at expiration). As detailed below, the +60.7% aroi achieved by early close exceeded the minimum +54.9% aroi threshold requirement in this instance.
Halliburton Company (HAL) -- Covered Calls Position Closed Out Early
The transactions were:
8/28/2023 Bought 500 Halliburton Co. shares @ $38.40
8/28/2023 Sold 5 HAL 9/15/2023 $37.00 Call options @ $1.86
9/5/2023 Quarterly ex-dividend of $.16 per share
9/5/2023 Unwound Halliburton Covered Calls position by simultaneously Selling-to-Close 500 shares @ $40.83 and Buying-to-Close 5 HAL 9/15/2023 $37.00 Call options @ $3.95 per share.
The overall performance results (including commissions) for this Halliburton Co. Covered Calls position are as follows:
Covered Calls Cost Basis: $18,273.35
= ($38.40 - $1.86) * 500 shares + $3.35 commissions
Net Profit Components:
(a) Options Income: -$1,051.70
= ($1.86 - $3.95) * 500 shares - $6.70
(b) Dividend Income (9/5/2023 ex-dividend): +$80.00
= ($.16 dividend per share x 500 shares)
(c) Capital Appreciation (HAL shares sold at $40.83 per share on 9/5/2023): +$1,215.00
+($40.83 -$38.40) * 500 shares
Total Net Profit: +$243.30
= (-$1,051.70 options income + $80.00 dividend income + $1,215.00 capital appreciation)
Absolute Return-on-Investment: +1.3%
= +$243.30/$18,273.35
Annualized Return-on-Investment: +60.7%
= (+$243.30/$18,273.35) * (365/8 days)
