Search This Blog

Friday, October 26, 2007

Roll Up Adjustment -- Merck

The Covered Calls Advisor Portfolio (CCAP) covered call position in Merck (MRK) was rolled up today (10/26/07) from the Nov 52.5 to the Nov 57.5. The transactions were as follows:

10/26/07 Buy-to-Close (BTC) 5 MRK Nov 52.5s @ $5.20
10/26/07 Sell-to-Open (STO) 5 MRK Nov 57.5s @ $1.30
Net Debit on Roll Up $3.90

The ‘net debit to strike price difference ratio’ was 78% [$3.90/($57.7-$52.5)]*100, which was slightly above this advisor’s desired threshold of rolling up when the ratio is <75%.

A summary of the MRK transactions so far is as follows:
Initial MRK Post:
9/7/07 Bought 500 MRK @ 49.97
9/7/07 Sold 5 MRK Oct07 50 Calls @ 1.85
Prior Roll Out Transaction:link
10/19/07 BTC 5 MRK Oct 50s @ $3.90
10/19/07 STO 5 MRK Oct 52.5s @ $2.40
Today:
10/26/07 BTC 5 MRK Nov 52.5s @ $5.20
10/26/07 STO 5 MRK Nov 57.5s @ $1.30
Note: MRK stock was trading at $57.40 today when the roll up transaction was executed.

The results-to-date through the completed Nov 52.5 covered calls and the status on the newly established Nov 57.5 covered calls position (including commissions) are each summarized below:

(a) Completed Covered Calls Transactions:
Original Stock Investment 9/7/07 – Purchased 500 shares MRK @ $49.97
= $49.97*500 + $9.95 commission = ($24,994.95)
Change in Stock Value ($57.40-$49.97)*500 = $3,715.00
Change in Options Value = 1st Options Write Income $911.30($1.85*500-$13.70 commission) minus 1st Options Buyback Cost $1,963.70($3.90*500+$13.70 commission) plus 2nd Options Write Income $1,186.30($2.40*500-$13.70) minus 2nd Options Buyback Cost $2,613.70($5.20*500+$13.70) = -$2,479.80($911.30-$1,963.70+$1,186.30-$2,613.70)

Net Change (+$3,715.00-$2,613.70) = $1,101.30

ANNUALIZED RETURN ON INVESTMENT:
(1,101.30/24,994.95)*(365/49 days) = 32.8%

(b) New Covered Call Position Established Today:
10/26/07 Retained 500 MRK at $57.40 = ($28,700)
10/26/07 Sold 5 Nov07 57.5 Calls @ $1.30 = $636.30 ($1.30*500-$13.70 commission)

Annualized Return If Unchanged (ARIU) 37.6%
Annualized Return If Exercised (ARIE) 40.5%
Downside Breakeven Protection 2.3% =Avg. of .10%/day for 22 days until expiration.

No comments:

Post a Comment