Early Assignment of Cigna Corporation Covered Calls

Early this morning, the Covered Calls Advisor received an email from my broker (Schwab) that the two Cigna (ticker CI) Call options were exercised early, so the 200 shares of Cigna stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $205.00 strike price. 

Details of the transactions and the results for this Cigna position are provided below.  When this Covered Calls position was established, the time value (i.e. extrinsic value) was $1.40 per share [$6.23 Call options premium - ($209.83 stock purchase price - $205.00 strike price)].  By yesterday's market close which was the last business day prior to next Tuesday's ex-dividend date (since the stock market is closed on Monday for Labor Day), the stock price has increased from the original purchase price of $209.63 per share to $216.92 at yesterday's market close.  The original $1.40 time value had declined on yesterday's market close to only $.03 (at the midpoint of the Call options bid/ask spread price), so the owner of the Calls exercised their option to buy the 200 Cigna shares at the $205.00 strike price in order to receive the $1.00 per share dividend.

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 on the day prior to the ex-div date (as it was in this case).  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 was instead assigned at the options expiration date.  

As detailed below, the early assignment for this Cigna Corp. position provided a return-on-investment result for the Covered Calls Advisor Portfolio of +0.7% absolute return-on-investment (equivalent to +31.2% annualized roi for the 8 days this position was held). The Covered Calls Advisor is pleased with this early assignment since the +31.2% annualized roi achieved exceeds the +22.6% that might have been achieved if the position was instead assigned on the September 17th options expiration date. 

 

Cigna Corp. (CI) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was as follows:
08/30/2021 Bought 200 Cigna Corp. shares @ $209.83
08/30/2021 Sold 2 Cigna 9/17/2021 $205.00 Call options @ $6.23
09/03/2021 Call owners exercised their option early, so in the Covered Calls Advisor's Portfolio the 9/17/2021 $205.00 Call options expired and the 200 shares owned were sold at the $205.00 strike price.

The overall performance results (including commissions) for this Cigna Covered Calls position were as follows:
Covered Calls Cost Basis: $40,721.34
= ($209.83 - $6.23) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,244.66
= ($6.23 * 200 shares) - $1.34 commissions
(b) Dividend Income (Two Call options exercised early on the business day prior to the Sept 7th ex-div date): +$0.00
(c) Capital Appreciation (CI shares assigned early on Sept.3rd, the last business day prior to the Sept. 7th options expiration date): -$966.00
+($205.00 - $209.83) * 200 shares

 Total Net Profit: +$278.66

= (+$1,244.66 +$0.00 - $966.00)

 

Absolute Return-on-Investment: +0.7%

= +$278.66/$40,721.34

Annualized Return-on-Investment: +31.2%

= (+$278.66/$40,721.34) * (365/8 days)

Established Covered Calls in Best Buy Inc.

Update: Several subscribers have inquired about receiving email notifications sooner than the batch overnight emails. I have updated my service with my RSS Feed provider (Feedblitz) so now you should be receiving an email notification within 45 minutes after I make any post. FYI, I entered this Best Buy post today at 2:31 pm Eastern Daylight Savings Time. 

Today, a new Covered Calls position was entered in Best Buy Inc. (ticker BBY) for the September 24th, 2021 options expiration and at the $112.00 strike price when the stock was at $115.05.  Based on the Covered Calls Advisor's current cautious sentiment, a moderately in-the-money position was established at a Delta of 68.8 (which approximates a 68.8% probability that the Calls will expire in-the-money on the options expiration date).  There is an upcoming ex-dividend on Sept. 13th of $.70 per share, so the possibility of early assignment on the last business day prior to the ex-div date is included in the detailed return-on-investment results below. 

Analysts covering Best Buy have an average target price of $130.77 (+13.7% above today's purchase price).  The Covered Calls Advisor also likes the valuation based on its P/E Ratio -- based on estimates for this year's earnings per share, the P/E would be 11.7 which compares favorably with the prior 5-year average of 14.7. 

As detailed below, a potential return-on-investment result is +1.1% absolute return (equivalent to +39.3% annualized return for the next 10 days) if the stock is assigned early (last business day prior to the September 13th ex-date); OR +1.7% absolute return (equivalent to +28.3% annualized return over the next 22 days) if the stock is assigned on the September 24th, 2021 options expiration date.

Best Buy Inc. (BBY) -- New Covered Calls Position

The transactions were as follows:
9/03/2021 Bought 200 shares of Best Buy shares @ $115.05 per share 
9/03/2021 Sold 2 Best Buy September 24th, 2021 $112.00 Call options @ $4.25 per share
Note: this was a net debit limit simultaneous Buy/Write transaction
09/13/2021 Upcoming quarterly ex-dividend of $.70 per share

Two possible overall performance results (including commissions) for this Best Buy Covered Calls position are as follows:
Covered Calls Cost Basis: $22,161.34
= ($115.05 - $4.25) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$848.66
= ($4.25 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 13th ex-div date): +$0.00; or
(b) Dividend Income (If BBY shares assigned at Sept 24th, 2021 options expiration): +$140.00
= ($.70 dividend per share x 200 shares)
(c) Capital Appreciation (If Best Buy shares assigned early on Friday, Sept.10th the last business day prior to the Monday, Sept. 13th options expiration date): -$610.00
+($112.00 - $115.05) * 200 shares ;or
(c) Capital Appreciation (If Best Buy shares assigned at $112.00 strike price at options expiration): -$610.00
+($112.00 - $115.05) * 200 shares

1. Total Net Profit [If options exercised on Sept. 10th (business day prior to the Sept. 13th ex-dividend date)]: +$238.66

= (+$848.66 +$0.00 - $610.00); or

2. Total Net Profit (If Best Buy shares assigned at $112.00 strike price at Sept. 24th, 2021 expiration): +$378.66

= (+$848.66 +$140.00 - $610.00)

1. Absolute Return-on-Investment [If BBY Call options exercised on business day prior to ex-dividend date]: +1.1%

= +$238.66/$22,161.34

Annualized Return-on-Investment (If options exercised early): +39.3%

= (+$238.66/$22,161.34) * (365/10 days); or

2. Absolute Return (If BBY shares assigned at $112.00 strike price on Sept 24th, 2021 expiration): +1.7%

= +$378.66/$22,161.34

Annualized Return (If Best Buy stock assigned at $112.00 at Sept 24th, 2021 expiration): +28.3%

= (+$378.66/$22,161.34) *(365/22 days)

These returns will be achieved as long as the stock is above the $112.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $110.10 ($115.05 -$4.25 -$.70) provides 4.3% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved.  As shown in the table below, all nine criteria are met for this Best Buy Inc. Covered Calls position.

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)

Covered Calls Established in Devon Energy Corp.

Early in this morning's trading, a new Covered Calls position was established in Devon Energy Corp. when 500 shares were purchased at $28.69 and 5 September 17th, 2021 Call options were sold at $1.24 per share at the $28.00 strike price.  The net debit limit order at $27.45 was executed, so the time value was $.55 per share [$1.24 Call options premium - ($18.69 stock purchase price - $18.00 strike price)]. There is an upcoming ex-dividend of $.49 per share ($.11 regular dividend plus a $.38 special dividend), both on September 10th, 2021.  So two potential return-on-investment results for this position are detailed below and include the possibility of early exercise since these ex-dividends are prior to the September 17th, 2021 options expiration date.  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 64.2, which approximates a probability of 64.2% that the Call options will be in-the-money on the options expiration date. 

Devon is very highly rated by analysts that cover the company since 27 of 31 total analysts rate it as either strong buy or buy and their average target price is $37.97 which is +32.3% above today's $28.69 purchase price.  Credit Suisse currently identifies Devon as one of only three 'Top Stocks for an Accelerating Economy' in the Energy Sector.  

The Covered Calls Advisor expects the current Cabot Oil & Gas Covered Calls position to be in-the-money and therefore assigned tomorrow at its 9/3/2021 options expiration.  This Devon Energy position will replace it as the sole Energy Sector position in the Covered Calls Advisor Portfolio. 

As detailed below, a potential return-on-investment result is +2.0% absolute return (equivalent to +90.3% annualized return for the next 8 days) if the stock is assigned early (business day prior to the September 10th ex-date); OR +3.8% absolute return (equivalent to +85.9% annualized return over the next 16 days) if the stock is assigned on the September 17th, 2021 options expiration date.

Devon Energy Corp. (DVN) -- New Covered Calls Position
The transaction today was as follows:
09/02/2021 Bought 500 Devon Energy shares @ $28.69
09/02/2021 Sold 5 Devon 9/17/2021 $28.00 Call options @ $1.24   Note: the Implied Volatility of these Call options was 34.3 when this position was established.
09/10/2021 Upcoming quarterly ex-dividend of $.49 per share

Two possible overall performance results (including commissions) for this Devon Energy Covered Calls position are as follows:
Covered Calls Cost Basis: $13,718.35
= ($28.69 - $1.24) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$616.65
= ($1.24 * 500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 10th ex-div date): +$0.00; or
(b) Dividend Income (If Devon shares assigned at Sept 17th, 2021 options expiration): +$245.00
= ($.49 dividend per share x 500 shares)
(c) Capital Appreciation (If Devon shares assigned early on Sept.10th): -$345.00
+($28.00 - $28.69) * 500 shares ;or
(c) Capital Appreciation (If Devon shares assigned at $28.00 strike price at options expiration): -$345.00
+($28.00 - $28.69) * 500 shares

1. Total Net Profit [If options exercised on Sept. 9th (business day prior to the Sept. 10th ex-dividend date)]: +$271.65

= (+$616.65 +$0.00 - $345.00); or

2. Total Net Profit (If Devon shares assigned at $28.00 strike price at Sept. 17th, 2021 expiration): +$516.65

= (+$616.65 + $245.00 - $345.00)

1. Absolute Return-on-Investment [If Devon Call options exercised on business day prior to ex-dividend date]: +2.0%

= +$271.65/$13,718.35

Annualized Return-on-Investment (If options exercised early): +90.3%

= (+$271.65/$13,718.35) * (365/8 days); or

2. Absolute Return-on-Investment (If Devon shares assigned at $28.00 strike price on Sept 17th, 2021 expiration): +3.8%

= +$516.65/$13,718.35

Annualized Return-on-Investment (If Devon stock assigned at $28.00 strike at Sept 17th, 2021 expiration): +85.9%

= (+$516.65/$13,718.35) *(365/16 days)

These returns will be achieved as long as the stock is above the $28.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $26.96 ($28.69 -$1.24 -$.49) provides 6.0% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved.  As shown in the table below, eight of the nine criteria are met for this Devon Energy Corp. Covered Calls position.