This is a good outcome for the Covered Calls Advisor since the resulting +27.1% annualized return-on-investment (aroi) achieved is better than the +18.6% maximum possible aroi that might have been achieved later at the options expiration date if the stock was above the $39.00 strike price on the expiration date. As detailed below, a net profit of $129.00 was achieved in 15 days
since the full $882.00 income (profit) received from selling the options
exceeded the $753.00 loss in the stock price value. For any Covered Calls position where there is an ex-dividend date prior to the options expiration date, the Covered Calls Advisor usually prefers to have the stock called away (assigned) early, normally the day prior to the ex-div date. The reason is that the Covered Calls Advisor's Dividend Capture Strategy spreadsheet was designed to identify positions where the annualized-return-on-investment from early assignment is most often greater than what might be achieved if the stock is instead assigned at the options expiration date. The transactions and detailed results for this position are as follows:
Bank of America Corp. (BAC) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was as follows:
05/19/2021 Bought 300 shares of Bank of America Corp. stock @ $41.51 per share
05/19/2021 Sold 3 BAC June 18th, 2021 $39.00 Call options @ $2.94 per share
Note: The Open Interest in these Calls was 10,779 contracts and their Implied Volatility was 29.1
06/02/2021 Three Call options exercised early, so Call options expired and 300 shares of BAC stock were sold at the $39.00 strike price.
The overall performance results (including commissions) were as follows:
Covered Calls Cost Basis: $11,573.01
= ($41.51 - $2.94) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$882.00
= ($2.94 * 300 shares)
(b) Dividend Income (BAC shares assigned on 6/2/2021, the business day prior to the 6/3/2021 ex-dividend date): = +$0.00
(c) Capital Appreciation (BAC shares assigned early on 6/2/2021): -$753.00
= ($39.00 -$41.51) * 300 shares
Net Profit (Bank of America shares assigned on 6/2/2021, the day prior to the June 3rd ex-dividend date): +$129.00
= (+$882.00 options income +$0.00 dividend income - $753.00 capital appreciation)
Absolute Return (BAC shares assigned on 6/2/2021, the day prior to the June 3rd ex-dividend date): +1.1%
= +$129.00/$11,573.01
Equivalent Annualized Return: +27.1%
= (+$129.00/$11,573.01)*(365/15 days)
