Early this morning, the Covered Calls Advisor was notified by my broker (Schwab) that the two IBM Corporation (ticker IBM) November 18th, 2022 $131.00 Call options were exercised yesterday. IBM's quarterly ex-dividend of $1.65 is today (November 9th) and as with this IBM position, it is commonplace that early assignments normally occur on the last business day prior to the ex-dividend date (Nov. 8th in this case). As detailed below, IBM's stock has increased from its original purchase price six days ago of $134.23 to $140.04 at the market close yesterday. The original $.74 per share time value when this Covered Calls position was established had declined at yesterday's market close to only $.085 per share (at the midpoint of its current $8.95/$9.30 Bid/Ask spread). Note for your information: the calculation formula to obtain this $.085 time value at yesterday's closing price was equal to [$131.00 strike price + ($8.95+$9.30)/2 Call options' bid/ask midpoint price) - $140.04 closing price yesterday] which equals the $.085 per share remaining time value.
When this Covered Calls position was originally established on November 3rd (you can read the original post here if you would like to), I stated that for the IBM Calls owner to be incentivized to exercise their Calls early, the "stock would have to move up in price by the last business day prior to the Nov. 9th ex-div date and by an amount that would cause the time value remaining in these Call options to decline from their $.74 value on November 3rd when this Covered Calls position was established to about $.20 or less". So as expected -- since the current remaining time value was only $.085 (i.e. less than $.20) and with 9 days remaining until the November 18th options expiration date -- the owner of the Calls did choose to exercise their option and thus bought the 200 IBM shares at the $131.00 strike price just in time to obtain eligibility to receive today's $1.65 per share ex-dividend.
As detailed below, this IBM Covered Calls position was closed out by early assignment with the following results: +0.6% absolute return-on-investment in 6 days which is equivalent to an annualized return-on-investment of +34.2%.
IBM Corporation (IBM) -- IBM Covered Calls Position Closed by Early Assignment
The buy/write transaction was:
11/3/2022 Bought 200 IBM shares @ $134.23
11/3/2022 Sold 2 IBM 11/18/2022 $131.00 Call options @ $3.97
11/9/2022 IBM Call options owner exercised their options, so the Covered Calls position was closed out early. The 2 IBM Call options expired worthless and the 200 IBM shares were sold at the $131.00 strike price.
The overall performance results (including commissions) for this IBM Covered Calls position are as follows:
Covered Calls Net Investment: $26,053.34
= ($134.23 - $3.97) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$792.66
= ($3.97 * 200 shares) - $1.34 commission
(b) Dividend Income (Call options exercised early on Nov. 8th, the last business day prior to the November 9th ex-div date): +$0.00
(c) Capital Appreciation: -$646.00
+($131.00 strike price - $134.23 stock purchase price) * 200 shares
