Early Assignment of Covered Calls Position in Wells Fargo & Company

Early this morning the Covered Calls Advisor was notified by my broker (Schwab) that the three Wells Fargo & Company May 13th, 2022 $40.00 Call options were exercised yesterday (the last business day prior to today's 5/5/2022 ex-dividend date).  The Wells Fargo stock price had increased from its purchase price of $43.86 to $45.98 at yesterday's market close.  

This early exercise was expected by the Covered Calls Advisor since these Call options were deep-in-the-money (Delta of 94.9) and had only $.07 time value remaining [($40.00 strike price +$6.05 midpoint of $5.05/$7.05 bid/ask spread) - $45.98 stock price at yesterday's market close].   So, the time value had declined from $.26 when the Covered Calls position was established to $0.07 at market close on the day prior to the ex-dividend date.  The owners of the Call options elected to purchase the 300 shares at the $40.00 strike price and thus also capture the $.25 per share ex-dividend, so I captured all the original $.26 per share time value as profit.   

Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +38.8% annualized return-on-investment (aroi) achieved exceeds the +30.8% maximum potential aroi that might have been achieved on the May 13th options expiration date (if the stock remains above the $40.00 strike price on that expiration date). 

The transactions and detailed results for this Covered Calls position were as follows:

Wells Fargo & Company (WFC) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:

04/29/2022 Bought 300 Wells Fargo shares @ $43.86
Note: this stock price was down 2.9% from yesterday's closing price (and the Dow was down more than 700 points) this afternoon when this transaction executed.
04/29/2022 Sold 3 Wells Fargo 5/13/2022 $40.00 Call options @ $4.12
05/04/2022 Three WFC Call options exercised early so the WFC Covered Calls position was closed out since the Calls expired and the 300 shares were sold at the $40.00 strike price.

The overall performance results (including commissions) for this Wells Fargo Covered Calls position were as follows:
Covered Calls Cost Basis: $11,924.01
= ($43.86 - $4.12) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,233.99
= ($4.12 * 300 shares) - $2.01 commission
(b) Dividend Income (Call options exercised early on May 4th, the business day prior to the May 5th ex-div date): +$0.00

(c) Capital Appreciation: -$1,158.00
+($40.00 - $43.86) * 300 shares

Total Net Profit [Three Call options exercised on May 4th (business day prior to the May 5th ex-dividend date)]: +$75.99

= (+$1,233.99 options income +$0.00 dividend income -$1,158.00 capital appreciation)

 

Absolute Return-on-Investment: +0.6%

= +$75.99/$11,924.01

Annualized Return-on-Investment: +38.8%

= (+$75.99/$11,924.01)*(365/6 days)