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Tuesday, October 30, 2007

Roll Up -- Honeywell

The Covered Calls Advisor Portfolio (CCAP) covered call position in Honeywell (HON) was rolled up today (10/30/07) from the Nov 57.5 to the Nov 60. The transactions were as follows:

10/30/07 Buy-to-Close (BTC) 5 HON Nov 57.5s @ $3.00
10/30/07 Sell-to-Open (STO) 5 HON Nov 60s @ $1.25
Net Debit on Roll Up $1.75

The ‘net debit to strike price difference ratio’ was 70% [($3.00-$1.25)/($60-$57.5)]*100, which was better than this advisor’s desired minimum threshold of <75% for roll ups.

A summary of the HON transactions so far, including today's roll up is as follows:
9/10/07 Initial Stock Position -- BTO 500 HON @ 54.23
9/10/07 Initial Call Option -- STO 5 HON Oct07 55 Calls @ 1.80
9/26/07 Roll Up Transaction -- BTC 5 HON Oct 55s @ $4.70
9/26/07 Roll Up Transaction -- STO 5 HON Oct 60s @ $1.10
10/20/07 Oct07 Option Expiration Date – HON closed below the strike price at $58.32
10/22/07 Covered Calls Continuation Transaction -- STO 5 Nov07 57.5 Calls @ $2.25
10/30/07 Roll Up Transaction -- (BTC) 5 HON Nov 57.5s @ $3.00
10/30/07 Roll Up Transaction -- (STO) 5 HON Nov 60s @ $1.25
The stock was trading at $59.83 when today's roll-up transaction was made.

The results-to-date through the completed Nov 57.5 covered calls and the status on the newly established Nov 60 covered calls position (including commissions) are each summarized below:

(a) Completed Covered Calls Transactions:
Original Stock Investment 9/10/07 – Purchased 500 shares HON @ $54.23
= $54.23*500 + $9.95 commission = ($27,124.95)
Change in Stock Value to Present ($59.83-$54.23)*500 = $2,800.00
Change in Options Value = 1st Options Write Income $886.30($1.80*500-$13.70 commission) minus 1st Options Buyback Cost $2,336.30($4.70*500+$13.70 commission) plus 2nd Options Write Income $536.30($1.10*500-$13.70) plus 3rd Options Write Income $1,111.30($2.25*500-$13.70) minus 2nd Options Buyback Cost $1,513.70($3.00*500+$13.70) = -$1,316.10($886.30-$2,336.30+$536.30+1,111.30-$1,513.70)

Net Change (+$2,800.00-$1,316.10) = $1,483.90

ANNUALIZED RETURN ON INVESTMENT:
(1,483.90/27,124.95)*(365/50 days) = 39.3%

(b) New Covered Call Position Established Today:
10/30/07 Retained 500 HON at $59.83 = ($29,915)
10/30/07 Sold 5 Nov07 60 Calls @ $1.25 = $611.30 ($1.25*500-$13.70 commission)

Annualized Return If Unchanged (ARIU) 42.3%
Annualized Return If Exercised (ARIE) 48.1%
Downside Breakeven Protection 2.1% =Avg. of .12%/day for 18 days until expiration which exceeds the minimum threshold of .06%/day for the covered calls advisor.

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