Early Assignment of Covered Calls Position in Marathon Petroleum Corporation

I was notified by Schwab early this morning that the two Marathon Petroleum Corporation (ticker MPC) November 29th, 2024 Call options were exercised yesterday.  Because the Marathon Petroleum stock price increased from $154.87 when this position was established to $158.80 at yesterday's market close, the original $1.54 time value in the Calls when the position was established had declined on yesterday's market close to $0.00.  So, with nine days remaining until the November 29th options expiration date, the owner of these Calls exercised their option to buy the 200 shares at the $150.00 strike price in order to receive today's $.91 per share ex-dividend.  Although I will not receive todays' ex-dividend, I am pleased with the +53.9% annualized-return-on-investment (aroi) result achieved today by early assignment since it exceeds the maximum +37.6% aroi that might have been achieved if this position instead remained in-the-money and would therefore be assigned on its November 29th, 2024 options expiration date.   

The post when this Marathon Petroleum Corp. Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this MPC Covered Calls position was +1.0% absolute return in 7 days (equivalent to a +53.9% annualized return-on-investment).

Marathon Petroleum Corp. (MPC) -- Covered Calls Position Closed by Early Assignment

The buy/write transaction was:
11/13/2024 Bought 200 Marathon Petroleum Corp. shares @ $154.87
11/13/2024 Sold 2 MPC 11/29/2024 $150.00 Call options @ $6.41 per share
Note: Two Marathon Petroleum Calls were exercised on the day prior to their November 20th, 2024 ex-dividend date, so the Calls expired and the 200 MPC shares were sold at the $150.00 strike price.

The overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Call Net Investment: $29,693.34
= ($154.87 - $6.41) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,280.66
= ($6.41 * 200 shares) - $1.34 commission
(b) Dividend Income (MPC Cal options exercised early on Nov. 19th, the last business day prior to the November 20th ex-div date): +$0.00
(c) Capital Appreciation: -$974.00
+($150.00 strike price - $154.87 stock price) * 200 shares

Total Net Profit: +$306.66

= (+$1,280.66 options income +$0.00 dividend income -$974.00 capital appreciation)

Absolute Return-on-Investment: +1.0%

= +$306.66/$29,693.34

Annualized Return-on-Investment: +53.9%

= (+$306.66/$29,693.34) * (365/7 days)

Established Covered Calls Position in Target Corporation

A buy/write limit order in Target Corporation (ticker TGT) was executed at the Covered Calls Advisor's net debit price of $141.90 per share.  Two hundred shares were purchased at $154.41 and two November 29th, 2024 weekly Call options were sold for $12.51 at the $145.00 strike price, a time value of $3.10 = [$12.51 options premium - ($154.41 stock price - $145.00 strike price)] per share. 

This position uses the Covered Calls Advisor's Dividend Capture Strategy.  Target has an upcoming quarterly ex-dividend of $1.12 per share (a 2.9% annual dividend yield) that goes ex-dividend on November 20th, 2024 which is prior to the November 29th options expiration date.  Importantly, they also announce their Q3 2025 earnings on November 20th.  I normally avoid holding Covered Calls positions during a company's earnings report, but given the very attractive Implied Volatility of 52.7 (and the accompanying high annualized return-on-investment potential) for this particular Call option, I feel the inflated volatility provided a reasonable risk/reward set-up.  This dividend is included in the detailed potential return-on-investment calculations below.  Either an early assignment on the day prior to the ex-dividend date or on the November 29th, 2024 options expiration date would be desirable to the Covered Calls Advisor given the attractive potential annualized return-on-investment upon assignment for either outcome.

As detailed below, two potential return-on-investment results are: 

•  +2.2% absolute return (equivalent to +132.6% annualized return-on-investment for the next 6 days) in the relatively unlikely event that the stock price moves substantially higher and is assigned early (business day prior to the November 20th ex-dividend date); OR 

• +3.0% absolute return (equivalent to +72.2% annualized return-on-investment over the next 15 days) if the stock is assigned on the November 29th options expiration date.

Target Corporation (TGT) -- New Covered Calls Position
The simultaneous buy/write transaction was:
11/14/2024 Bought 200 Target Corp. shares @ $154.41.
11/14/2024 Sold 2 Target 11/29/2024 $145.00 Call options @ $12.51 per share.
Note: The Implied Volatility of the Call options was 52.7 when this position was transacted.
11/20/2024 Upcoming quarterly ex-dividend of $1.12 per share.

Two possible overall performance results (including commissions) for this Target Corporation Covered Calls position are as follows:
Covered Calls Cost Basis: $28,381.34
= ($154.41 - $12.51) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$2,500.66
= ($12.51 * 200 shares) - $1.34 commission
(b) Dividend Income (If options exercised early on Nov. 19th, the business day prior to the Nov. 20th, 2024 ex-div date): +$0.00; or
(b) Dividend Income (If Target's stock assigned on the Nov. 29th, 2024 options expiration): +$224.00
= ($1.12 dividend per share x 200 shares)

(c) Capital Appreciation (If TGT Call options assigned early on Nov. 19th): -$1,882.00
+($145.00 strike price - $154.41 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $145.00 strike price at options expiration): -$1,882.00
+($145.00 - $154.41) * 200 shares

1. Total Net Profit (If options exercised early): +$618.66

= (+$2,500.66 options income +$0.00 dividend income -$1,882.00 capital appreciation); or

2. Total Net Profit (If Target shares assigned at $145.00 at the Nov. 29th, 2024 expiration): +$842.66

= (+$2,500.66 +$224.00 -$1,882.00)

1. Absolute Return-on-Investment [If option exercised on business day prior to the Nov. 20th ex-dividend date]: +2.2%

= +$618.66/$28,381.34

Annualized Return-on-Investment (If option exercised early): +132.6%

= (+$618.66/$28,381.34) * (365/6 days); or

2. Absolute Return-on-Investment (If Target shares assigned on the Nov. 29th, 2024 options expiration date): +3.0%

= +$842.66/$28,381.34

Annualized Return-on-Investment (If Target shares assigned at $145.00 at the Nov. 29th, 2024 expiration): +72.2%

= (+$842.66/$28,381.34) * (365/15 days)

Either outcome provides an exceptional return-on-investment result for this Target Corp. Covered Calls investment.  These returns will be achieved as long as the stock is above the $145.00 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $140.78 = ($154.41 stock price - $12.51 Call options price - $1.12 dividend) provides a substantial 8.8% downside protection below today's stock purchase price.

Established Covered Calls in Discover Financial Services

Today with less than an hour before the market close, a Covered Calls position was established in Discover Financial Services (ticker DFS) with a November 29th, 2024 options expiration date. Two hundred shares of Discover were purchased at $174.90 and two Call options were sold at $10.36 per share at the $167.50 strike price.  The potential time value profit was $2.96 per share [$167.50 strike price - ($174.90 share price - $10.36 Call options premium)] when this buy/write net debit limit order transaction was executed.  

Discover also has an upcoming ex-dividend date on November 21st (8 days from today) at $.70 per share (1.6% annual dividend yield), so this is included in the potential return-on-investment results detailed below.  This in-the-money Covered Calls position is consistent with my preference (with upcoming ex-dividends prior to the options expiration date) to use my Dividend Capture Strategy.  With this strategy it is possible to achieve an attractive annualized return-on-investment result if either the position is assigned on the options expiration date or if it is assigned early (normally on the day prior to the ex-dividend date).  Also, because of the volatility immediately after quarterly earnings reports are released, it is preferred that there be no quarterly earnings report prior to the options expiration date, and this is true for this Discover Financial position since the next earnings report is not until January 15th, 2025.  The approximate probability of assignment on the options expiration date was 69.1% when this position was established.

Discover's business is in digital banking (including the Discover brand credit cards) and payment services.  Capital One has made a bid to acquire Discover which helps to explain Discover's recent bullish price action, but resolution of this potential merger will likely take several months to work its way through regulatory channels.  

Two potential return-on-investment results are as follows: (a) +1.8% absolute return-on-investment (equivalent to +81.9% annualized roi) for 8 days if this Covered Calls position is assigned early on November 20th, 2024 (the last business day prior to the Nov. 21st ex-dividend date); OR  (b) +2.2% absolute return-on-investment (equivalent to +50.6% annualized roi) for 16 days if this Covered Calls position is in-the-money on the November 29th, 2024 weekly options expiration date.

Discover Financial Services (DFS) -- New Covered Calls Position Established
The simultaneous buy/write transaction was as follows:
11/13/2024 Bought 200 shares of Discover Financial Services @ $174.90 per share; and 
11/13/2024 Sold 2 DFS Nov. 29th, 2024 $167.50 Call options @ $10.36 per share.  The Implied Volatility of these Calls was 32.7 when this position was established.
11/21/2024 Upcoming ex-dividend of $.70 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $32,909.34
= ($174.90 - $10.36) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$2,070.66
= ($10.36 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If DFS shares assigned at the Nov. 29th, 2024 expiration): +$140.00
= ($.70 dividend per share x 200 shares)
(c) Capital Appreciation (If Discover shares assigned early): -$1,480.00
+($167.50 strike price - $174.90 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If DFS shares assigned at $167.50 strike price at options expiration): -$1,480.00
+($167.50 - $174.90) * 200 shares

1. Total Net Profit [If option exercised on Nov. 20th, 2024 (the last business day prior to the November 21st ex-dividend date)]: +$590.66

= (+$2,070.66 options income +$0.00 dividend income -$1,480.00 capital appreciation); or

2. Total Net Profit (If Discover Financial shares assigned at $167.50 strike price at the November 29th, 2024 options expiration): +$730.66

= (+$2,070.66 +$140.00 -$1,480.00)

1. Absolute Return-on-Investment (If DFS options exercised early on the last business day prior to the ex-dividend date): +1.8%

= +$590.66/$32,909.34

Annualized Return-on-Investment (If DFS Call options exercised early on Nov 21st, 2024): +81.9%

= (+$590.66/$32,909.34) * (365/8 days); or

2. Absolute Return-on-Investment (If DFS shares assigned at $167.50 at the Nov. 21st, 2024 options expiration date): +2.2%

= +$730.66/$32,909.34

Annualized Return-on-Investment (If DFS stock assigned at $167.50 at the Nov. 21st, 2024 options expiration date): +50.6%

= (+$730.66/$32,909.34) * (365/16 days)

Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $167.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $163.84 ($174.90 - $10.36 - $.70) provides 6.3% downside protection below today's purchase price.

Established Covered Calls in Marathon Petroleum Corporation

This morning a Covered Calls position was established in the Marathon Petroleum Corporation (ticker symbol MPC) at a net debit buy/write limit order of $148.46.  Two hundred shares were purchased at $154.87 and two November 29th, 2024 Call options were sold at $6.41 per share at the $150.00 strike price.  This buy/write transaction occurred when there was a 71.6% probability that the stock would be in-the-money and therefore assigned at the $150.00 strike price on the options expiration date.  The potential time value profit is $1.54 per share [$6.41 Call options premium - ($154.87 stock purchase price - $150.00 strike price)].  

In addition to this $1.54 per share time value profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.91 (annual dividend yield of 2.4%) on November 20th, 2024.  The $.91 dividend represents a 10.3% increase above the quarterly dividend level during the same quarter last year.  

Marathon Petroleum Corp.'s Q3 2024 earnings report eight days ago included both a substantial revenue and an earnings per share beat compared with analysts' estimates.  The stock has continued to react positively to this news during the past week.  The 19 analysts that cover Marathon Petroleum Corp. on average have a 'Buy' rating and an average Target Price of $172.00 (+11.1% above today's purchase price).     

Marathon is among the largest of U.S.-based refiners (along with Valero and Phillips 66).  Marathon has refining and marketing along with midstream operations located in the Gulf of Mexico, the Mid-Continent, and the West Coast.

 
As detailed below, two potential return-on-investment results are: 

•  +1.0% absolute return (equivalent to +53.9% annualized return-on-investment for the next 7 days) if the stock is assigned early (on the last business day prior to the November 20th, 2024 ex-dividend date); OR 

• +1.6% absolute return (equivalent to +37.6% annualized return-on-investment over the next 16 days) if the stock is assigned on the November 29th options expiration date.

Marathon Petroleum Corp. (MPC) -- New Covered Call Position

The buy/write transaction was:
11/13/2024 Bought 200 Marathon Petroleum Corp. shares @ $154.87
11/13/2024 Sold 2 MPC 11/29/2024 $150.00 Call options @ $6.41 per share
Note: the Implied Volatility of the Call options was 22.8 when this buy/write transaction was executed.  As preferred, this exceeds the Implied Volatility of the S&P 500 (i.e. SPY) which is currently 14.6.
11/20/2024 Upcoming quarterly ex-dividend of $.91 per share

Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Call Net Investment: $29,693.34
= ($154.87 - $6.41) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,280.66
= ($6.41 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Nov. 19th, the last business day prior to the November 20th ex-div date): +$0.00; or
(b) Dividend Income (If MPC stock assigned at the Nov. 29th, 2024 expiration): $182.00
= ($.91 dividend per share x 200 shares)
(c) Capital Appreciation (If Marathon Petroleum Call option is assigned early on Nov. 19th): -$974.00
+($150.00 strike price - $154.87 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $150.00 strike price at the Nov. 29th options expiration): -$974.00
+($150.00 - $154.87) * 200 shares

1. Total Net Profit [If option exercised early on the last business day prior to the Nov. 20th ex-dividend date)]: +$306.66

= (+$1,280.66 options income +$0.00 dividend income -$974.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $150.00 strike price at the Nov. 29th, 2024 expiration): +$488.66

= (+$1,280.66 options income +$182.00 dividend income -$974.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on Nov. 20th): +1.0%

= +$306.66/$29,693.34

Annualized Return-on-Investment: +53.9%

= (+$306.66/$29,693.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Marathon Petroleum Corp. shares assigned at $150.00 on the Nov. 29th, 2024 options expiration date): +1.6%

= +$488.66/$29,693.34

Annualized Return-on-Investment (If MPC shares assigned at the 11/29/2024 expiration date): +37.6%

= (+$488.66/$29,693.34) * (365/16 days)

Either outcome provides a very attractive return-on-investment result for this Marathon Petroleum investment.  These returns will be achieved as long as the stock is above the $150.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $147.55 ($154.87 - $6.41 - $.91) provides a 4.7% downside protection below today's purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Marathon Petroleum Corp. position, all nine criteria were met.