Early Assignment of Cigna Corporation Covered Calls

Early this morning, the Covered Calls Advisor received an email from my broker (Schwab) that the two Cigna (ticker CI) Call options were exercised early, so the 200 shares of Cigna stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $205.00 strike price. 

Details of the transactions and the results for this Cigna position are provided below.  When this Covered Calls position was established, the time value (i.e. extrinsic value) was $1.40 per share [$6.23 Call options premium - ($209.83 stock purchase price - $205.00 strike price)].  By yesterday's market close which was the last business day prior to next Tuesday's ex-dividend date (since the stock market is closed on Monday for Labor Day), the stock price has increased from the original purchase price of $209.63 per share to $216.92 at yesterday's market close.  The original $1.40 time value had declined on yesterday's market close to only $.03 (at the midpoint of the Call options bid/ask spread price), so the owner of the Calls exercised their option to buy the 200 Cigna shares at the $205.00 strike price in order to receive the $1.00 per share dividend.

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 on the day prior to the ex-div date (as it was in this case).  The reason early assignment is preferred is that the Covered Calls Advisor's Dividend Capture Strategy spreadsheet was designed to identify positions where the annualized return-on-investment (aroi) from early assignment is greater than what might be achieved if the stock was instead assigned at the options expiration date.  

As detailed below, the early assignment for this Cigna Corp. position provided a return-on-investment result for the Covered Calls Advisor Portfolio of +0.7% absolute return-on-investment (equivalent to +31.2% annualized roi for the 8 days this position was held). The Covered Calls Advisor is pleased with this early assignment since the +31.2% annualized roi achieved exceeds the +22.6% that might have been achieved if the position was instead assigned on the September 17th options expiration date. 

 

Cigna Corp. (CI) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was as follows:
08/30/2021 Bought 200 Cigna Corp. shares @ $209.83
08/30/2021 Sold 2 Cigna 9/17/2021 $205.00 Call options @ $6.23
09/03/2021 Call owners exercised their option early, so in the Covered Calls Advisor's Portfolio the 9/17/2021 $205.00 Call options expired and the 200 shares owned were sold at the $205.00 strike price.

The overall performance results (including commissions) for this Cigna Covered Calls position were as follows:
Covered Calls Cost Basis: $40,721.34
= ($209.83 - $6.23) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,244.66
= ($6.23 * 200 shares) - $1.34 commissions
(b) Dividend Income (Two Call options exercised early on the business day prior to the Sept 7th ex-div date): +$0.00
(c) Capital Appreciation (CI shares assigned early on Sept.3rd, the last business day prior to the Sept. 7th options expiration date): -$966.00
+($205.00 - $209.83) * 200 shares

 Total Net Profit: +$278.66

= (+$1,244.66 +$0.00 - $966.00)

 

Absolute Return-on-Investment: +0.7%

= +$278.66/$40,721.34

Annualized Return-on-Investment: +31.2%

= (+$278.66/$40,721.34) * (365/8 days)