Early assignment on AFL & AJO HE

August 17th, 2009 · 1 Comment

I received an e-mail from TradeKing just a little more than an hour ago informing me that my AJO HE options (Aug 2009 $31 strike) had been assigned and my shares of AFL sold.  This is pretty much what I expected to happen given the option contained so little time value: assignment before the ex-dividend date of Aug 19th.  So here’s a summary of round-trip trade.

Critical dates
2009.07.14: Initial position: BTO 100 AFL @ $31.28 (including commissions)
2009.07.14: Initial call option: STO 1 AJO HE (Aug09 $31) @ $2.42 (after commissions)
2009.08.17: Assignment: STC 100 AFL @ $30.94 (including commissions)

Days position held: 34
Capital investment: $2885.56
Income received: $209.41
Percent return if called: 7.26%
Annualized yield if called: 112.51%

I’m happy with this return, even though if I had simply bought AFL outright I would have been up over $1000 during the similar time period.  Why?  Well for one thing, I do own AFL outright in another investment account.  For another, this has been a learning experience.  I actually sold the options at a strike lower than what AFL was trading at when I entered into this position.   I totally did not expect this run up, and if it hadn’t happened I still would have made money as long as AFL closed above $28.86 on Aug 22nd.

As mentioned in comments on a follow-up to the original post, I had considered trying to capture some of this run up by rolling my option.   But the numbers just wouldn’t work out for me.  Once the price exceeded the $35 mark, the net debit incurred by doing a roll would have exceeded the capital I had in this portfolio.  Plus it would have added more risk that assignment wouldn’t happen and that my basis price could be significantly above what AFL might be trading at near expiration.   I never could find a reason for this rally — all the news I was seeing about AFL indicated things just weren’t as bad as they could have been — which isn’t really a reason to bet on sustained increases to me.

So, now I’m off to do some research and figure out what my next trade should be.

Tags: Trades

1 response so far ↓

  1. 1 Belated: Another dance with AFL | Geographic Independence // 2009.11.09 at 12:17 pm

    […] I still like AFL enough to have long-term long positions in it.)  Plus, I have previously done a covered call against AFL in my GI portfolio.  And it would easily fit within my capital […]

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