Early Assignment of IBM Corp. Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the two IBM Corp. February 26th, 2021 $115.00 Call options were exercised early yesterday (on February 8th, 2021), the last business day prior to today's (Feb. 9th) ex-dividend date.   The IBM stock price has increased from its purchase price of $118.15 to $121.98 at the market close yesterday.  So the initial $.84 time value [$3.99 Call options price - ($118.15 stock price - $115.00 strike price)] declined to only $.04 time value remaining at market close yesterday, so the owner of the Calls exercised their right to buy the 200 shares of IBM at the $115.00 strike price and capture today's (February 9th) $1.63 ex-dividend.  

As detailed below, a very attractive +0.7% absolute return in 6 days (equivalent to a +44.8% annualized return-on-investment) was achieved for this position.  The Covered Calls Advisor was pleased with this result since the annualized return of +44.8% that has been achieved exceeded the +32.9% annualized roi that might have been achieved in the future (i.e. Feb. 26th, 2021 options expiration) if the stock price remains above the strike price and therefore the stock would instead be assigned then.

IBM Corp. (IBM) -- Early Assignment of IBM Covered Calls Position
The buy/write transaction was:
02/03/2021 Bought 200 IBM shares @ $118.15
02/03/2021 Sold 2 IBM 2/26/2021 $115.00 Call options @ $3.99
Note: the Bid/Ask spread was $3.90/$4.15 when this transaction was executed.
02/08/2021 Early exercise of 2 IBM Feb. 26th, 2021 $115.00 Call options, so 200 IBM shares were assigned (i.e. sold) at the $115.00 strike price.

The overall performance results (including commissions) for this IBM Covered Calls position are as follows:
Covered Calls Cost Basis: $22,833.34
= ($118.15 - $3.99) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$798.00
= ($3.99 * 200 shares)
(b) Dividend Income (Two Call options exercised early on Feb. 8th, the business day prior to the Feb 9th ex-div date): +$0.00
(c) Capital Appreciation (IBM Call options assigned early on Feb 8th): -$630.00
= +($115.00 - $118.15) * 200 shares

 Total Net Profit [Options exercised on Feb 8th (business day prior to Feb 9th ex-dividend date)]: +$168.00

= (+$798.00 options income +$0.00 dividend income -$630.00 capital appreciation)

 

 Absolute Return (Two IBM Call options exercised early on February 8th): +0.7%

= +$168.00/$22,833.34

Annualized Return: +44.8%

= (+$168.00/$22,833.34)*(365/6 days)