Last Thursday (January 12th, 2023), a Covered Calls position was established in the Mosaic Company (ticker MOS) at the $43.00 strike price and for the January 27th, 2023 options expiration dates. The stock price has increased from $44.71 when purchased to $48.33 this morning. I have a "Rule-of-Thumb for Early Close" table (shown below), and this Mosaic Covered Calls position exceeded the minimum annualized-return-on-investment (aroi) threshold for closing out a position early. This position has been held for 5 days now and there were 16 days total duration until the 1/27/2023 options expiration date which corresponds to category #2 in the rules table below. The category #2 decision criteria is that the aroi if closed early be at least 80% higher than the aroi if the position was instead assigned on the original options expiration date. So, the minimum aroi threshold is +85.1% for early close out of this Mosaic position. As detailed below, the +115.6% aroi achieved by early close exceeded the minimum +85.1% aroi threshold in this instance.
The buy/write transaction was:
1/12/2023 Bought 400 Mosaic Co. shares @ $44.71 per share
1/12/2023 Sold 4 MOS 1/27/2023 $43.00 Call options @ $2.59 per share. The Implied Volatility of these Calls was 42.1 when this transaction was executed.
1/17/2023 Unwound Mosaic Covered Calls position by simultaneously Selling-to-Close 400 shares @ $48.33 and Buying-to-Close 4 MOS 1/27/2023 $43.00 Call options @ $5.53 per share.
The overall performance results (including commissions) for this position was as follows:
Covered Calls Net Investment: $16,850.68
= ($44.71 - $2.59) * 400 shares + $2.68 commission
Net Profit:
(a) Options Income: -$1,181.26
= ($2.59 - $5.53) * 400 shares - $5.26 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$1,448.00
+($48.33 selling price per share - $44.71 purchase price) * 400 shares
Total Net Profit: +$266.74
= (-$1,181.26 options income +$0.00 dividend income +$1,448.00 capital appreciation)
Absolute Return-on-Investment: +1.6%
= +$266.74/$16,850.68
Annualized Return-on-Investment: +115.6%
= (+$266.74/$16,850.68) * (365/5 days)
