Early Assignment of JPMorgan Chase & Co. Covered Calls

Early this morning I received email and text notifications from my broker (Schwab) that all 3 JPMorgan Chase & Co. (ticker symbol JPM) Call options were exercised early, so the 300 shares of JPM stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $105.00 strike price. 

Details of the transactions and the results for this JPMorgan Chase position are provided below.  The per share price had increased from $107.86 when the position was originally established (on June 25th) to $113.00 at yesterday's market close.  The time value remaining in the Call options (based on the $8.80 midpoint of the $8.70/$8.90 bid/ask spread at the market close yesterday) was $.80 [$8.80- ($113.00 - $105.00)].  The Call owner exercised their option to buy the shares at the $105.00 strike price in order to capture the dividend.  This outcome was somewhat surprising because the Call owner decided to forego the $.80 time value remaining in the Call option to capture today's $.80 ex-dividend per share despite the fact that the JPM stock price declines by the $.80 dividend amount at market open today. 

There are two reasons that I preferred this outcome (i.e. early assignment) instead of keeping the covered calls position and capturing today's $.80 per share ex-dividend:

• Early assignment resulted in a significantly higher annualized return-on-investment (41.2% achieved) rather than if the position had instead been assigned on the July 19th options expiration date which (including the $.80 per share dividend) would have resulted in a 26.1% annualized ROI; and
• JPMorgan Chase & Co. will report their 2nd quarter earnings on July 16th which is prior to the July 19th options expiration date.  Because of the increased uncertainty associated with earnings reports, the Covered Calls Advisor prefers to avoid holding positions on earnings reporting days.

The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new Covered Calls position is established.  As always, the transactions details will be posted on this blog site the same day that they occur.

The detailed results for this JPMorgan position are provided below.

JPMorgan Chase & Co. -- Early Assignment of JPMorgan Covered Calls

The transactions were:
06/25/2019 Bought 300 JPM shares @ $107.86
06/25/2019 Sold 3 JPM 7/19/2019 $105.00 Call options @ $3.94
Note: a simultaneous buy/write transaction was executed.
07/02/2019 Early exercise of 3 JPM July 19th, 2019 $105.00 Call options, so 300 JPM shares assigned at $105.00 strike price.

The overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $31,180.95
= ($107.86 - $3.94) *300 shares + $4.95 commission

Net Profit:
(a) Options Income: +$1,179.99
= ($3.94 *300 shares) - $2.01 commissions
(b) Dividend Income (Call options exercised early on July 2nd, the business day prior to July 3rd ex-div date): +$0.00

(c) Capital Appreciation: -$862.95
+($105.00 -$107.86)*300 shares - $4.95 commissions

Total Net Profit: +$317.04

= (+$1,179.99 +$0.00 -$862.95)

Absolute Return: +1.0%

= +$317.04/$31,180.95

Annualized Return (If option exercised early): +41.2%

= (+$317.04/$31,180.95)*(365/9 days)