Roll-Up Covered Calls in Morgan Stanley

On July 19th, 2021 the Covered Calls Advisor established a Covered Calls position in Morgan Stanley at the August 6th, 2021 $86.00 strike price.  The price of the 200 Morgan Stanley shares has increased from the purchase price of $88.42 to $95.775 this afternoon.  There was only $.055 time value per share remaining in the Call options but 7 days remaining until the ex-dividend of $.70 per share and 16 days remaining until the Aug. 6th options expiration date.

The Covered Calls Advisor looked at the time value to roll-up the existing Calls to various higher strike prices and decided to roll up from the original $86.00 strike to the $91.00 strike at the same Aug. 6th, 2021 options expiration date.  A vertical debit spread transaction was executed at a net debit of $4.75 ($9.83 - $5.08) per share -- so $.25 time value per share potential additional net profit ($91.00 new strike price - $86.00 original strike price - $4.75 net debit) was added to the Covered Calls position.  In addition, there remains a possibility that the $.70 dividend will be captured if the stock continues to rise somewhat higher and the time value declines to about $.15 or less on the day prior to next Friday's ex-dividend date. 

As detailed below, two potential return-on-investment results are: 

•  +1.6% absolute return (equivalent to +59.2% annualized return for 10 days) if the stock is assigned early (business day prior to the July 29th ex-dividend date); OR 

• +2.4% absolute return (equivalent to +47.0% annualized return over a 19 days investment) if the stock is assigned on the August 6th options expiration date.

By rolling up the original Covered Calls, the potential early assignment annualized return-on-investment of +59.2% would exceed the +49.0% potential from the original position.  Alternatively, if assigned on the August 6th options expiration date, the +47.0% annualized roi would exceed the +41.7% potential aroi from the original position.  In Covered Calls investing parlance, this is sometimes referred to as "hitting a double" (instead of the usual "single"), since the roll-up enables us to sell Calls twice against the original stock purchase with both positions being at the same options expiration date and to increase our annualized return-on-investment if the new rolled-up Covered Calls position is assigned.

Morgan Stanley (MS) -- Continuation of Covered Calls Position by Roll-Up Transaction
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.
07/29/2021 Upcoming quarterly ex-dividend of $.70 per share

Two possible overall performance results (including commissions) for this rolled-up Morgan Stanley Covered Calls position are 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 (If option exercised early on July 28th, the business day prior to the July 29th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at Aug. 6th, 2021 expiration): +$140.00
= ($.70 dividend per share x 200 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on July 28th): +$516.00
+($91.00 - $88.42) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $91.00 strike price at Aug. 6th options expiration): +$516.00
+($91.00 - $88.42) * 200 shares

1. Total Net Profit [If option exercised on July 28th (business day prior to July 29th ex-dividend date)]: +$275.34

= (-240.68 options income +$0.00 dividend income +$516.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $91.00 strike price at August 6th, 2021 expiration): +$415.32

= (-$240.68 +$140.00 +$516.00)

1. Absolute Return (If option exercised early on July 28th): +1.6%

= +$275.34/$16,973.34

Annualized Return (If option exercised early): +59.2%

= (+$275.34/$16,973.34)*(365/10 days); or

2. Absolute Return (If Morgan Stanley shares assigned at $91.00 at August 6th, 2021 options expiration): +2.4%

= +$415.32/$16,973.34

Annualized Return (If Morgan Stanley shares assigned at $91.00 at Aug 6th, 2021 expiration): +47.0%

= (+$415.32/$16,973.34)*(365/19 days)