This morning the Covered Calls Advisor was notified by Schwab that the two JPMorgan Chase & Co. October 16th, 2020 $90.00 Call options were exercised early on October 2nd, the last business day prior to the October 5th ex-dividend date. There was only $.04 time value [$7.93 midpoint of $7.75/$8.10 bid/ask range - ($97.89 stock price - $90.00 strike price)] remaining in the Call options, so the owner of the Calls decided to exercise their right to buy the 200 shares of JPMorgan at the $90.00 strike price and capture Monday's $.90 ex-dividend.
This is a not an unfavorable outcome for the Covered Calls Advisor -- in fact it is the Covered Calls Advisor's preferred result since the +48.1% annualized return-on-investment (aroi) achieved exceeds the +39.5% maximum possible aroi that might have been achieved later if the stock remained above the $90.00 strike price at market close on the October 16th options expiration date. Also, since JPMorgan has an upcoming earnings report on October 13th (prior to the options expiration date), this early assignment avoids deciding whether to retain the position through the earnings report or selling out the position prior to earnings to avoid the related uncertainty of that event. As detailed below, a net profit of $280.00 was achieved in 12 days
since the full $1,044.00 income (profit) received from selling the options
exceeded the $764.00 net loss in the stock price.
JPMorgan Chase & Co. (JPM) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:
09/23/2020 Bought 200 JPM shares @ $93.82
09/23/2019 Sold 2 JPM 10/16/2020 $90.00 Call options @ $5.22
10/02/2020 Early Exercise of JPM 10/16/2020 $90.00 Call options, so 200 shares of JPM were assigned (sold) at the $90.00 strike price.
The overall performance results (including commissions) for this JPM Covered Calls position were as follows:
Stock Purchase Cost: $17,721.34
= ($93.82 - $5.22) *200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$1,044.00
= ($5.22 *200 shares)
(b) Dividend Income (Options assigned early on Oct. 2nd, the business day prior to October 5th ex-div date): +$0.00
(c) Capital Appreciation (If JPM options assigned early): -$764.00
+($90.00 -$93.82) *200 shares
Total Net Profit [Options exercised on last business day prior to Oct 5th ex-dividend date)]: +$280.00
=(+$1,044.00 options income +$0.00 dividend income -$764.00 capital appreciation)
