Early Assignment of Covered Call Position in Union Pacific Corporation

Early this morning, I was notified by my broker that the one Union Pacific Corporation (ticker UNP) March 3rd, 2023 $187.50 Call option was exercised yesterday.  Union Pacific stock has increased from its purchase price of $193.73 this past Tuesday to $194.02 at the market close yesterday.  The original $1.06 time value in the Call when the position was established had declined on yesterday's market close to $0.08 at the buy/write midpoint price and the Delta was 92.5, so I was not surprised that (with seven calendar days remaining until the options expiration date), the owner of this UNP Call exercised their option to buy the 100 shares at the $187.50 strike price in order to receive Monday's $1.30 per share ex-dividend.  I am satisfied with this early assignment despite losing the opportunity to capture the $1.30 ex-dividend since the +51.5% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +41.9% aroi that would have been achieved if this position was instead assigned on its March 3rd, 2023 options expiration date.       

The post when this Union Pacific Covered Call position was originally established is here.  As detailed below, the return-on-investment result for this UNP Covered Call position was +0.6% absolute return in 4 days (equivalent to a +51.5% annualized return-on-investment)

Union Pacific Corporation (UNP) -- Covered Call Position Closed Out by Early Assignment

The buy/write transaction was:
2/21/2023 Bought 100 Union Pacific Corp. shares @ $193.73
2/21/2023 Sold 1 Union Pacific 3/3/2023 $187.50 Call option @ $7.29 per share
Note: the Implied Volatility of the Call options was 24.0 when this buy/write transaction was executed.
2/24/2023 Union Pacific Call option owner exercised their Call option, so the Covered Call position was closed out early. The UNP Call option expired worthless and the 100 Union Pacific shares were sold at the $187.50 strike price.

The overall performance results (including commissions) for this Covered Call position are as follows:
Covered Call Net Investment: $18,644.67
= ($193.73 - $7.29) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$728.33
= ($7.29 * 100 shares) - $.67 commission
(b) Dividend Income (UNP Call option exercised early on Feb. 24th, the last business day prior to Monday's February 27th ex-div date): +$0.00
(c) Capital Appreciation (UNP Call option is assigned early on Feb. 24th): -$623.00
+($187.50 strike price - $193.73 stock purchase price) * 100 shares

 

Total Net Profit: +$105.33

= (+$728.33 options income +$0.00 dividend income -$623.00 capital appreciation)

 

Absolute Return-on-Investment: +0.6%

= +$105.33/$18,644.67

Annualized Return-on-Investment: +51.5%

= (+$105.33/$18,644.67) * (365/4 days)