Monday, November 19, 2007

November 2007 Expiration Closing Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of 8 positions with Nov07 expirations with the following results so far:

- 2 positions closed in-the-money and the calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results were:
McDonald's -- +92.6%
Merck -- +39.5%

- 6 positions (ACN,LLY,HAL,HON,EWY,JPM) ended out-of-the-money. Three positions were closed out today by selling the stock. The 3 closed positions were Accenture(ACN), JP Morgan(JPM), and Eli Lilly(LLY), and each of their annualized return-on-investment (ROI) %s are summarized as follows:
Accenture -- -116.0%
JP Morgan -- -61.0%
Eli Lilly -- -61.3%

These 3 covered call positions were poor investments. However, this advisor believes that sometimes it is better to accept your losses and re-apply the assets where there are better future opportunities. This is the case with these three and the reason for deciding to sell out of the stock is presented below in each case. The transactions history and performance results for each of these 3 covered call positions is provided below:

1. Accenture – Closed

It was decided to close out the ACN position since there is an earnings release prior to the Dec07 expiration date and this advisor prefers not to hold stocks during earnings releases.

Transactions History:
10/23/07 Initial Stock Position -- Bought 1000 ACN @ 39.48
10/23/07 Option Exercised –- Sold 10 ACN Nov07 40 Calls @ $1.05
11/17/07 Nov07 Option Expiration Date – ACN closed below the strike price
11/19/07 Sold 1000 ACN @ $35.08

Performance Results(including commissions):
Stock Purchase Cost: $39,489.95 ($39.48*1000+$9.95 commissions)

Options Income: $1,032.55 ($1.05*1000-$17.45 commissions)
Dividend Income: $0
Capital Appreciation: -$4,419.90 [($35.08*1000-$9.95)-$39,489.95]
Net Profit: -$3,387.35 ($1,032.55-$4,419.90)

ANNUALIZED RETURN ON INVESTMENT:
(-$3,387.35/$39,489.95)*(365/27 days) = -116.0%


2. JPM – Closed
It was a difficult decision whether to continue with or close out this JPM holding.
What caused this advisor to decide to sell out was the fact that JPM has some credit write-off issues, and although modest compared with some other large money-center banks, it still provides a cloud that could continue to adversely effect the stock's perception and price for a while.


Transactions History:
10/23/07 Initial Stock Position -- Bought 500 JPM @ 45.58
10/23/07 Ititial Calls Position -- Sold 5 JPM Nov07 45 Calls @ $1.75
11/17/07 Nov07 Option Expiration Date – JPM closed below the strike price
11/19/07 Sold 500 JPM @ $41.82

Performance Results(including commissions):
Stock Purchase Cost: $22,799.95 ($45.58*500+$9.95 commissions)

Options Income: $861.30 ($1.75*500-$13.70 commissions)
Dividend Income: $0
Capital Appreciation: -$1,899.90 [($41.82*500-$9.95)-($45.58*500-$9.95)]
Net Profit: -$1,028.60 ($861.30-$1,899.90)

ANNUALIZED RETURN ON INVESTMENT:
(-$1,028.60/$22,799.95)*(365/27 days) = -61.0%


3. LLY – Closed
This position was closed out because analysts' consensus future earnings estimates for LLY have decreased since this purchase which is reason enough alone to sell the stock according to this advisor's methodology.


Transactions History:
10/23/07 Initial Stock Position -- Bought 500 LLY @ 56.48
10/23/07 Initial Calls Position -- Sold 5 LLY Nov07 55 Calls @ $2.95
11/13/07 Dividend Received -- 500 @ $.425
11/17/07 Nov07 Option Expiration Date – LLY closed below the strike price
11/19/07 Sold 500 LLY @ $50.62

Performance Results(including commissions):
Stock Purchase Cost: $28,249.95 ($56.48*500+$9.95 commissions)

Options Income: $1,461.30 ($2.95*500-$13.70 commissions)
Dividend Income: $212.50 (500*$.425)
Capital Appreciation: -$2,949.90 [($50.62*500-$9.95)-($56.48*500-$9.95)]
Net Profit: -$1,276.10 ($1,461.30+$212.50-$2,949.90)

ANNUALIZED RETURN ON INVESTMENT:
(-$1,276.10/$28,149.95)*(365/27 days) = -61.3%

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