As detailed below, a +1.6% absolute
return in 10 days (equivalent to a +59.2% 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 $.70 quarterly dividend) since the annualized return of +59.2% that was achieved exceeded the potential +47.0% annualized roi that might have been achieved in the future (i.e. at August 6th, 2021 options expiration) if the stock price remains above the strike price and therefore the stock would have instead been assigned then. In addition, by rolling up to the $91.00 strike price, the Covered Calls Advisor "hit a double" and thereby increased the early assignment (on the day prior to the ex-dividend date) annualized roi from the original Covered Calls position (at the $86.00 strike price) from +49.0% to the +59.2% that was achieved.
Most companies in the Financial Sector provide only modest growth
prospects, but they often provide good annual dividend yields.
Consequently, the Covered Calls Advisor targets opportunities to use the
Dividend Capture Strategy in all Financial Sector Covered Calls
positions. This Morgan Stanley Covered Calls position continued the Dividend Capture Strategy of often selling
in-the-money monthly Covered Calls for one of five mega-cap U.S. banks
(Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan
Stanley) for each options expiration
month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).
The goal of these monthly Covered Calls in these banks (and for other Financial sector Covered Calls investments) is to achieve attractive annualized
return-on-investment results that exceed what would
have been achieved
if Covered Calls positions for these stocks were instead established during non-dividend-paying
months. This objective has been achieved not only for this Morgan Stanley position, but also for other positions established using the Covered Calls Advisor's Dividend Capture Strategy.
Morgan Stanley (MS) -- Early Assignment of Covered Calls Position
The buy/write transaction was:
07/19/2021 Bought 200 Morgan Stanley shares @ $88.42
07/19/2021 Sold 2 Morgan Stanley 08/06/2021 $86.00 Call options @ $3.56
Note: the Implied Volatility of the Call options was 26.8 when this buy/write transaction was executed.
07/22/2021 Roll-up MS Covered Calls position from the $86.00 to the $91.00 strike price at the identical Aug. 6th, 2021 expiration date at a net debit price of $4.75.
07/28/2021 Early exercise of 2 MS Aug. 6th, 2021 $91.00 Call options,
so 200 MS shares were assigned (i.e. sold) at the $91.00 strike
price.
The overall performance results (including commissions) for this rolled-up Morgan Stanley Covered Calls position were as follows:
Covered Calls Cost Basis: $16,973.34
= ($88.42 - $3.56) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: -$240.68
= ($3.56 - $9.83 + $5.08) * 200 shares - $2.68 commissions
(b) Dividend Income (Two Call options exercised early on July 28th, the business day prior to the July 29th ex-div date): +$0.00
(c) Capital Appreciation (Morgan Stanley Call options assigned early on July 28th): +$516.00
=+($91.00 - $88.42) * 200 shares
Total Net Profit: +$275.34
= (-240.68 options income +$0.00 dividend income +$516.00 capital appreciation)
