Covered Calls Advisor: Early Assignment of General Dynamics Corp. and Lincolon National Corp. Covered Calls

Thursday, October 8, 2020

Early Assignment of General Dynamics Corp. and Lincolon National Corp. Covered Calls

Early this morning, the Covered Calls Advisor received email and text notifications from my broker (Schwab) that two Covered Calls positions [General Dynamics Corp. (GD) and Lincoln National Corp. (LNC)] were exercised early by the Call option owners since both positions had ex-dividend dates today (October 8th) and the remaining time value in the options had declined to close to zero.

As detailed below, the return-on-investment results were as follows:

General Dynamics Corp. -- +1.4% absolute return (equivalent to +65.1% annualized roi for the 8 days this position was held); and
Lincoln National Corp. -- +2.3% absolute return (equivalent to +60.1% annualized roi for the 14 days this position was held)

1. General Dynamics Corp. (GD) -- Early Assignment of Covered Call Position
The buy/write transaction was:
09/29/2020 Bought 100 General Dynamics Corp. shares @ $138.16
09/29/2020 Sold 1 GD 10/16/2020 $135.00 Call option @ $5.06
Note: Implied Volatility of the Call options was 27.1 when this position was transacted and the Delta (approximately the probability of assignment at expiration) was 64.8.
10/07/2020 One GD Call option exercised so the 100 shares of General Dynamics stock was sold at the $135.00 strike price.

The overall performance result (including commissions) for this General Dynamics Covered Call position was as follows:
Covered Calls Cost Basis: $13,310.67
= ($138.16 - $5.06) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$506.00
= ($5.06 * 100 shares)
(b) Dividend Income (Call option exercised early on October 7th, the business day prior to the October 8th ex-div date): +$0.00

Total Net Profit: +$190.00

= (+$506.00 options income +$0.00 dividend income -$316.00 capital appreciation)

Absolute Return: +1.4%

= +$190.00/$13,310.67

Annualized Return: +65.1%

= (+$190.00/$13,310.67)*(365/8 days)

2. Lincoln National Corp. (LNC) -- Early Assignment of Covered Calls Position
The buy/write transaction was:
09/24/2020 Bought 300 Lincoln National shares @ $30.05
09/24/2020 Sold 3 LNC 10/16/2020 $27.50 Call options @ $3.17
Note: Implied Volatility of the Call options was 52.6 when this position was transacted.
10/07/2020 3 LNC Call options exercised so the 300 shares of Lincoln National stock were sold at the $27.50 strike price.

The overall performance result (including commissions) for this Lincoln National Covered Calls position was as follows:
Covered Calls Cost Basis: $8,066.01
= ($30.05 - $3.17) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$951.00
= ($3.17 * 300 shares)
(b) Dividend Income (Call options exercised early on October 7th, the business day prior to the October 8th ex-div date): +$0.00

Total Net Profit: +$186.00

= (+$951.00 options income +$0.00 dividend income -$765.00 capital appreciation)

Absolute Return: +2.3%

= +$186.00/$8,066.01

Annualized Return: +60.1%

= (+$186.00/$8,066.01)*(365/14 days)