Early Assignment of Tapestry Inc.

Early this morning, the Covered Calls Advisor received notice from my broker (Schwab) that the four Tapestry Inc. (ticker symbol TPR) Call options were exercised early, so the 400 shares of TPR stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $37.50 strike price. 

Details of the transactions and the results for this Tapestry position are provided below.  When this Covered Calls position was established, the time value (i.e. extrinsic value) was $.82 per share = [$3.03 Call options premium - ($39.71 stock price - $37.50 strike price)].  By yesterday's market close (the last business day prior to the September 3rd, 2021 ex-dividend date), the stock price has increased from $39.71 when the position was originally established (on August 20th) to $40.62 at yesterday's market close and the time value had declined substantially so the full $.82 time value in the options income profit per share potential was achieved upon the early assignment closing of this position.  Tapestry's  $.25 per share ex-dividend date is today, so the owner of the Calls exercised their option yesterday to buy the 400 Tapestry shares at the $37.50 strike price, so they will receive the $.25 per share dividend payment.

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 (as it was in this case) the day prior to the ex-div date.  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 is instead assigned at the options expiration date.  As detailed below, the early assignment for this Tapestry Inc. position provided a return-on-investment result for the Covered Calls Advisor Portfolio of +2.2% absolute return (equivalent to +57.8% annualized roi for the 14 days this position was held). The Covered Calls Advisor is pleased with this early assignment since the +57.8% annualized roi achieved greatly exceeds the +36.5% that might have been achieved if the position was instead assigned on the September 17th options expiration date. 

Tapestry Inc. (TPR) -- Covered Calls Position Closed by Early Assignment

The transactions were:
08/20/2021 Bought 400 Tapestry Inc. shares @ $39.71
08/20/2021 Sold 4 TPR 9/17/2021 $37.50 Call options @ $3.03
Note: the Implied Volatility of the Call options was 39.1 when this Covered Calls position was established.
09/02/2021 Early exercise of 4 TPR Sept 17th, 2021 $37.50 Call options, so 400 Tapestry shares were assigned (i.e. sold) at the $37.50 strike price.

The overall performance results (including commissions) for this Tapestry Covered Calls position were as follows:
Covered Calls Cost Basis: $14,674.68
= ($39.71 - $3.03) * 400 shares + $2.68 commissions

Net Profit Components:
(a) Options Income: +$1,209.32
= ($3.03 * 400 shares) - $2.68 commissions
(b) Dividend Income (4 Tapestry Call options exercised early on the business day prior to the Sept 3rd ex-div date): +$0.00

(c) Capital Appreciation (Tapestry shares assigned early on Sept. 3rd): -$884.00
+($37.50 - $39.71) * 400 shares

Total Net Profit [Call options exercised on Sept. 2nd (business day prior to the Sept. 3rd ex-dividend date)]: +$325.32

= (+$1,209.32 +$0.00 - $884.00

 Absolute Return-on-Investment (TPR Call options exercised on business day prior to ex-dividend date): +2.2%

= +$325.32/$14,674.68

Annualized Return-on-Investment: +57.8%

= (+$325.32/$14,674.68) * (365/14 days)