Friday, March 27, 2015

Called Away Due to Merger: KRFT

On Tuesday afternoon the financial markets were informed of the intent to merge HNZ and KRFT.  As it happens, I opened a 100 share position on KRFT just last week on March 19 – when the merger news broke, those shares rose more than $20 in one day, and my $62.50 April 2015 was called away.

Although the position plan for KRFT was designed to be a hat trick, where I would collect a covered call premium, dividend, and share gain, in the end that stock run up meant my call would be assigned early, well before the ex-dividend date, so I only received the call premium and the share gain, for an absolute return of $146 or 2.37%.  

If you extrapolate the annualized return on this 7-day trade, it is 123.60%!  I’m thinking that will be the best trade of the year, but if it isn’t, it's still good for me. 

Meanwhile, here is the final analysis of the KRFT trade, net of commissions and fees:


Bought 100 shares on March 19, 2015, for a basis of $6,149.99, or $61.50 per share. 
The position was called away on a $62.50 strike price, netting $6,232.00, for a total stock gain of $83.01.

Total options income:   $62.75

Total dividends collected:  $00.00 – the call was exercised before the April ex-dividend date.

Net Profit:
Total Net Profit after Unwinding:  $145.76
Absolute Return on Investment: ($145.76/$6,149.99) = 2.37%
Annualized Return (7 days):  10.69%*(365/7) = 123.60%

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