As you might recall, two Covered Calls positions were established in CVS with Feb 15th expirations (shown here). The first position was at the $60.00 strike price and the second was at the $62.50 strike price. CVS Health's stock price was $66.33 at yesterday's market close. Today, CVS goes ex-dividend at $.50 per share. Early exercise by the owners of these $60.00 strike price Call options was expected since there was virtually $0.00 time value remaining in these Call options. So, the Call owners exercised their option to purchase 200 CVS shares at $60.00 and today and they will capture the $.50 dividend. The Covered Calls Advisor expected assignment and was willing to let this outcome happen since the annualized return-on-investment result achieved of +44.3% exceeds the +22.1% that would occur if the stock price remains above the $60.00 strike at the Feb 15th options expiration date.
In comparison, the second CVS Feb 15th Covered Calls position is at the $62.50 strike price. These Calls were not exercised by the Call owners yesterday. The time value remaining in these Calls is $.22 = [$62.50 strike price - ($66.11 current stock price - $3.83 Call option value (midpoint of $3.75/$3.90 bid/ask spread))]. The owner of these Calls decided not to immediately forego the remaining $.22 per share time value in order to obtain the stock and therefore also capture today's dividend.
As detailed below, the actual return-on-investment result achieved for this CVS Health position is a +1.1% absolute return (equivalent to +44.3% annualized return) for the 9 days this position was held. The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new Covered Calls position is established, the transactions details of which will be posted on this blog site the same day they occur.
CVS Health Corp. (CVS) -- Covered Calls Position Closed by Early Assignment
The transactions were:
01/15/2019 Bought 200 CVS shares @ $63.20
01/15/2019 Sold 2 CVS 02/15/2019 $60.00 Call options @ $3.88
Note: A simultaneous buy/write transaction was executed.
01/23/2019 Early assignment of 2 CVS Feb 15th $60.00 Call options, so 200 shares of CVS stock sold at $60.00 strike price
The overall performance result (including commissions) for this CVS Covered Calls position was as follows:
Covered Calls Cost Basis: $11,868.95
= ($63.20 - $3.88) *200 + $4.95 commission
Net Profit Components:
(a) Options Income: +$774.66
= ($3.88*200 shares) - $1.34 commissions
(b) Dividend Income (CVS option exercised early on Jan 23rd, the business day prior to the ex-div date): +$0.00
(c) Capital Appreciation (CVS assigned early on Jan 23rd, 2019): -$644.95
+($60.00-$63.20)*200 shares - $4.95 commissions
+($60.00-$63.20)*200 shares - $4.95 commissions
Total Net Profit: +$129.71
= (+$774.66 +$0.00 -$644.95)
Absolute Return: +1.1%
= +$129.71/$11,868.95
Annualized Return on Investment: +44.3%
= (+$129.71/$11,868.95)*(365/9 days)
