Early Assignment of JPMorgan Chase & Co. Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the three JPMorgan Chase & Co. July 16th, 2021 $140.00 Call options were exercised early yesterday (on July 1st, 2021), the last business day prior to today's (July 2nd) ex-dividend date.   The JPMorgan stock price has increased from its purchase price of $147.77 on June 18th to $156.18 at the market close yesterday.  So the initial $1.38 time value = [$9.15 option premium - ($147.77 stock price - $140.00 strike price)] had declined substantially by yesterday's market close, so the owner of the Calls exercised their right to buy the 300 shares of JPMorgan at the $140.00 strike price and also capture today's $.90 ex-dividend.  

As detailed below, a +25.8% absolute return in 14 days (equivalent to a +25.8% annualized return-on-investment) was achieved for this position.  The Covered Calls Advisor was pleased with this result (and more than willing to forgo receiving today's $.90 quarterly dividend) since the annualized return of +25.8% that was achieved exceeded the potential +20.6% annualized roi that might have been achieved in the future (i.e. at July 16th, 2021 options expiration) if the stock price remains above the strike price and therefore the stock would have instead been assigned then.  Another benefit of this early assignment is that the next JPMorgan quarterly earnings report is on July 13th, 2021 which is prior to the July 16th, 2021 options expiration date and the Covered Calls Advisor prefers to avoid the uncertainty (and the associated increased volatility) of earnings reports.

 

JPMorgan Chase & Co. (JPM) -- Early Assignment of JPMorgan Chase Covered Calls Position

The buy/write transaction was:
06/18/2021 Bought 300 JPM shares @ $147.77
06/18/2021 Sold 3 JPM 07/16/2021 $140.00 Call options @ $9.15
07/01/2021 Early exercise of 3 JPM July 16th, 2021 $140.00 Call options, so 300 JPM shares were assigned (i.e. sold) at the $140.00 strike price.

The overall performance results (including commissions) for this JPM Covered Calls position were as follows:
Stock Purchase Cost: $41,588.01
= ($147.77 - $9.15) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$2,742.99
= ($9.15 *300 shares) - $2.01 commission
(b) Dividend Income (JPM Call options exercised early on July 1st, the business day prior to the July 2nd ex-div date): +$0.00

(c) Capital Appreciation (300 JPM shares assigned early): -$2,331.00
+($140.00 -$147.77) * 300 shares

Total Net Profit: +$411.99

= (+$2,742.99 options income +$0.00 dividend income -$2,331.00 capital appreciation)

 

Absolute Return-on-Investment: +1.0%

= +$411.99/$41,588.01

Annualized Return-on-Investment: +25.8%

= (+$411.99/$41,588.01)*(365/14 days)