Early Assignment of Eli Lilly and Company Covered Calls

The Covered Calls Advisor had an Eli Lilly and Company (ticker LLY) November 2016 covered calls position at the $75 strike price.  Early this morning, I received email notification from my broker (Schwab) that the 4 LLY Call options were exercised early, so the 400 shares of Lilly stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $75 strike price.

Details of the transactions and results for this Eli Lilly covered calls position are provided below.  The LLY shares had risen from $76.76 when purchased (on October 26th) to $78.39 at yesterday's market close.  The time value remaining in the Call options had declined to $0.00 (based on the midpoint of the $3.20/$3.55 bid/ask spread at the market close yesterday) -- so it was expected that the owner of the Call options would exercise his/her option early in order to purchase the 400 shares and thus capture the dividend.  In this advisor's experience, early assignment normally occurs only in those relatively deep-in-the-money positions when there is less than $.15 time value remaining near the end of trading on the day prior to the ex-div date. 

As detailed below, the actual return-on-investment result for this closed position was a +1.3% absolute return (equivalent to +32.7% annualized return) for the 14 days holding period.  This result was slightly better than the 30.4% annualized ROI that would have occurred if the covered calls had instead been held until expiration and if the options were exercised then.


The transactions history was as follows:

10/26/2016 Bought 400 LLY shares @ $76.76
10/26/2016 Sold 4 LLY Nov2016 $75.00 Call options @ $2.75
Note: a simultaneous buy/write transaction was executed.
11/10/2016 Quarterly ex-dividend of $.51 per share
11/09/2016 4 LLY Call options assigned and associated 400 LLY shares sold at $75.00 strike price.  Note: the price of LLY stock was $78.39 at yesterday's market close.

The overall performance result (including commissions) for this Eli Lilly covered calls position was as follows:
Stock Purchase Cost: $30,711.95
= ($76.76*400+$7.95 commission)

Net Profit:
(a) Options Income: +$1,097.00
= ($2.75*400 shares) - $3.00 commissions
(b) Dividend Income (Call options exercised early on business day prior to Nov 10th ex-div date): +$0.00

(c) Capital Appreciation (Early assignment on Nov 9th): -$311.95
+($75.00 sale price - $76.76 purchase price)*400 shares - $7.95 commissions

Total Net Profit (Call options exercised on day prior to Nov 10th ex-dividend date): +$385.05

= (+$1,097.00 options income +$0.00 dividend income -$711.95 capital appreciation)

Absolute Return: +1.3%

= +$385.05/$30,711.95

Annualized Return (Call options were exercised early): +32.7%

= (+$385.05/$30,711.95)*(365/14 days)

The cash now available from the closing of this Lilly covered calls position will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions will be posted on this site on the same day they occur.