Details of the transactions and the results for this CVS Health Corp. position are provided below. When this Covered Calls position was established, the time value (i.e. extrinsic value) was $.90 = [$3.35 options premium - ($62.45 stock price - $60.00 strike price)]. By yesterday's market close (the last business day prior to the July 22nd, 2020 ex-dividend date), the stock price has increased from $62.45 when the position was originally established (on July 8th) to $64.02 at yesterday's market close and the time value had declined to $0.00. So, the full $.90 options income profit per share potential was achieved upon the early assignment closing of this position. CVS' $.50 per share ex-dividend date is today, so the owner of the Calls exercised their option yesterday to buy the shares at the $60.00 strike price, so they will receive the $.50 per share dividend payment.
As detailed below, this early assignment provided a return-on-investment (roi) result for the Covered Calls Advisor Portfolio of +1.5% absolute return (equivalent to +39.7% annualized roi for the 14 days this position was held. The Covered Calls Advisor is pleased with this early assignment since the +39.7% annualized roi achieved exceeds the +36.0% that might have been achieved if the position was instead assigned on the July 31st options expiration date.
CVS Health Corp. (CVS) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:
07/08/2020 Sold 3 CVS 7/31/2020 $60.00 Call options @ $3.35
Note: The Call options Open Interest was 512 contracts.
07/21/2020 Early exercise of 3 CVS July 31st, 2020 $60.00 Call options, so 300 CVS shares were assigned (i.e. sold) at the $60.00 strike price.
The overall performance results (including commissions) for this CVS Health Covered Calls position were as follows:
Covered Calls Cost Basis: $17,732.01
= ($62.45 - $3.35) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$1,005.00
= ($3.35 * 300 shares)
(b) Dividend Income (Call options exercised early on July 21st, the business day prior to the July 22nd ex-div date): +$0.00
(c) Capital Appreciation: -$735.00
+($60.00 strike price - $62.45 stock purchase price) * 300 shares
+($60.00 strike price - $62.45 stock purchase price) * 300 shares
Total Net Profit: [Call options exercised on July 21st (business day prior to the July 22nd ex-dividend date)]: +$270.00
= (+$1,005.00 options income +$0.00 dividend income -$735.00 capital appreciation)
Absolute Return: +1.5%
= +$270.00/$17,732.01
Annualized Return: +39.7%
= (+$270.00/$17,732.01)*(365/14 days)
Testing your Covered Calls Knowledge:
When and why is a Covered Calls position most likely to be assigned early? Also, briefly describe why this could be a good or bad result for the Covered Calls investor.
Email me at partlow@cox.net with your answer and I will send you an email reply in return.
Best Wishes to All,
Jeff Partlow
Testing your Covered Calls Knowledge:
When and why is a Covered Calls position most likely to be assigned early? Also, briefly describe why this could be a good or bad result for the Covered Calls investor.
Email me at partlow@cox.net with your answer and I will send you an email reply in return.
Best Wishes to All,
Jeff Partlow
