Early Assignment of Bristol-Myers Squibb Co. and Cardinal Health Inc. Covered Calls

Early this morning, the Covered Calls Advisor received email notifications from my broker (Schwab) that two Covered Calls positions [Bristol-Myers Squibb Co. (BMY) and Cardinal Health Inc. (CAH)] were exercised early by the Call option owners.  The Covered Calls Advisor was somewhat surprised but also pleased that both positions were assigned early (on the day prior to today's ex-dividend date):
(1) "Surprised" because the Call owners chose to immediately forgo the still significant time value remaining in the Call options -- $.495 time value per share [$4.425 midpoint of the Call options' $4.35/$4.50 bid/ask spread - ($61.43 stock price - $57.50 strike price)] for BMY and $.35 time value per share [$3.35 midpoint of the Call options' $3.10/$3.60 bid/ask spread - ($53.00 stock price - $50.00 strike price)] for CAH; and
(2) "Pleased" because the annualized return-on-investment (aroi) for early assignment is greater than the aroi if the Covered Calls would instead have remained in-the-money for both positions at their January 15th, 2021 options expiration date and thus have been assigned then.

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

• Bristol-Myers Squibb Co. -- +1.1% absolute return (equivalent to +22.6% annualized return-on-investment for the 17 days this position was held); and 
• Cardinal Health Inc. --  +0.8% absolute return (equivalent to +31.1% annualized roi for the 9 days this position was held)
  
  

1.  Bristol-Myers Squibb Co. (BMY) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:
12/14/2020 Bought 300 Bristol-Myers Squibb Co. shares @ $60.00
12/14/2020 Sold 3 BMY 1/15/2021 $57.50 Call options @ $3.10
Note: The Call options' Implied Volatility(IV) was 23.3 when this position was transacted which is consistent with the Covered Calls Advisor's objective of selling options on companies whose IV exceeds that of the S&P 500 (whose IV is currently at 17.7).  Also, the transaction executed at the $3.10 midpoint of the $3.05/$3.15 bid/ask spread.
12/31/2020 Early exercise of 3 BMY Jan. 15th, 2021 $57.50 Call options, so 300 BMY shares were assigned (i.e. sold) at the $57.50 strike price.

The overall performance results (including commissions) for this Bristol-Myers Squibb Co. Covered Calls position are as follows:
Covered Calls Cost Basis: $17,072.01
= ($60.00 - $3.10) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$930.00
= ($3.10 * 300 shares)
(b) Dividend Income (3 Call options exercised early on Dec 30th, 2020, the business day prior to today's Dec 31st ex-div date): +$0.00

(c) Capital Appreciation (BMY Call options assigned early on Dec 30th, 2020): -$750.00
+($57.50 - $60.00) * 300 shares

 Total Net Profit: +$180.00

= (+$930.00 options income +$0.00 dividend income -$750.00 capital appreciation)

Absolute Return [Call options exercised early on the business day prior to ex-dividend date]: +1.1%

= +$180.00/$17,072.01

Annualized Return: +22.6%

= (+$180.00/$17,072.01)*(365/17 days)

2.  Cardinal Health Inc. (CAH) -- Covered Calls Position Closed by Early Assignment
The Covered Calls Advisor's buy/write limit order at a net debit of $49.62 was transacted as follows:
12/21/2020 Bought 200 Cardinal Health shares @ $53.62
12/21/2020 Sold 2 CAH 01/15/2021 $50.00 Call options @ $4.00 per share.  The Implied Volatility of the Calls was 27.8.
Note: the Time Value (aka Extrinsic Value) in the Call options was $.38 per share = [$4.00 Call options premium - ($53.62 stock price - $50.00 strike price)]
12/31/2020 Early exercise of 2 CAH Jan. 15th, 2021 $50.00 Call options, so 200 CAH shares were assigned (i.e. sold) at the $50.00 strike price.

The overall performance results (including commissions) for this Cardinal Health Covered Calls position are as follows:
Covered Calls Cost Basis: $9,925.34
= ($53.62 - $4.00) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$800.00
= ($4.00 * 200 shares)
(b) Dividend Income (Call options exercised early on Dec. 30th, 2020, the business day prior to the Dec. 31st ex-div date): +$0.00

(c) Capital Appreciation (Cardinal Health Call options assigned early on Dec 30th): -$724.00
+($50.00 - $53.62) * 200 shares

 Total Net Profit [Two Call options exercised on Dec 30th (business day prior to Dec. 31st ex-dividend date)]: +$76.00

= (+$800.00 options income +$0.00 dividend income - $724.00 capital appreciation)

 

Absolute Return (Call options exercised early on Dec. 30th): +0.8%

= +$76.00/$9,925.34

Annualized Return: +31.1%

= (+$76.00/$9,925.34)*(365/9 days)