Early Assignment of Bristol-Myers Covered Call Position

This morning, the Covered Calls Advisor received notification from my broker (Schwab) that one Bristol-Myers Squibb Co. (BMY) July 19th, 2019 Call option was exercised early, so 100 shares of Bristol-Myers stock were assigned (i.e. sold) at the $44.00 strike price.  The Covered Calls Advisor Portfolio was long 300 shares and short 3 July 19th $44.00 Call options, so (as shown in the right sidebar), 200 BMY shares and 2 short Calls remain in the portfolio and will likely stay there until the July 19th expiration date.

Today is Bristol-Myers' $.41 per share quarterly ex-dividend date.  This BMY Covered Calls position was established on June 26th, 2019 when the stock was purchased at $45.08 per share (link to blog post when Bristol-Myers position was established).  The price has since risen to $46.27 at yesterday's market close.  In the original blog post, the Covered Calls Advisor stated: "If the current time value (i.e. extrinsic value) of $.39 = [$1.47 options premium - ($45.08 stock price - $44.00 strike price)] remaining in the three short Call options decays substantially (down to about $.10 or less) by July 2nd (the last trading day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 300 Bristol-Myers shares away to capture the dividend payment. Yesterday, the remaining time value was $0.40, so I was somewhat surprised that a BMY Call owner would immediately forego the $.40 time value remaining in the Call option to capture today's $.41 ex-dividend per share, given that the stock price declines by the $.41 dividend amount at market open today.  Nevertheless, this is a satisfactory outcome since the annualized return-on-investment result achieved of +34.9% exceeds the +27.5% that would have occurred if the stock had instead been assigned at the July 19th options expiration date.  The cash received in the Covered Calls Advisor Portfolio will be retained until a new Covered Calls position is established, the transactions details of which will be posted on this blog the same day they occur.

The detailed results for this position are provided below. 


Bristol-Myers Squibb Co. (BMY) -- Early Assignment of one BMY Covered Call Position

The buy/write transaction was:
06/26/2019 Bought 300 Bristol-Myers shares @ $45.08
06/26/2019 Sold 3 BMY 7/19/2019 $44.00 Call options @ $1.47
Note: the Open Interest in these Call options was 223 contracts and the Implied Volatility was 23.8 when this transaction was executed.
07/02/2019 One BMY 7/19/2019 Call option exercised, so 100 BMY shares sold at the $44.00 strike price

The performance results (including commissions) for this Bristol-Myers Covered Calls position are as follows:
Covered Calls Cost Basis: $4,363.32
= ($45.08 - $1.47) * 100 shares + $6.96/3 commissions

Net Profit Components:
(a) Options Income: +$146.33
= ($1.47 *100 shares) - $.67 commission
(b) Dividend Income (One Call option exercised early on July 2nd): +$0.00

(c) Capital Appreciation (100 BMY shares assigned early on July 2nd): -$112.95
+($44.00 -$45.08)*100 shares - $4.95 commissions

Total Net Profit: +$33.38

= (+$146.33 options income +$0.00 dividend income -$112.95 capital appreciation)

Absolute Return: +0.8%

= +$33.38/$4,363.32

Annualized Return: +34.9%

= (+$33.38/$4,363.32)*(365/8 days); or