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Saturday, November 17, 2007

November Expiration Transactions

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

- 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. Decisions will be made to either sell the stock, or to keep the stock and sell calls to establish Dec07covered call positions. The related transactions will be made Monday morning and the actual transactions will be posted at that time.


Details for the two exercised positions were as follows:

1. McDonald's -- Closed
As you might recall, McDonald's was first identified as a 'Special Situation' by this advisor on 10/13/07 (Link to McDonald's original post) because of their $1.50 annual dividend payment that would occur prior to the November expiration as well as the strong fundamentals of the company. A covered calls position in MCD was established in the CCAP on 10/22/07 and the stock closed in-the-money on expiration Friday:

Transactions History:
10/22/07 Initial Stock Position -- Bought 500 MCD @ $55.94
10/22/07 Initial Call Options -- Sold 5 MCD Nov07 57.5 Calls @ $.70
11/13/07 Dividend Received -- 500 @ $1.50
11/17/07 Options Exercised -- STC 500 MCD @ $57.50

Performance Results(including commissions):
Stock Purchase Cost: $27,979.95
($55.94*500+$9.95 commission)

Net Profit:
(a) Options Income: $336.30 ($.70*500-$13.70 commission)
(b) Dividend Income: $750.00 ($1.50*500)
(c) Capital Appreciation: $760.1 [($57.50*500-$9.95)-$27,979.95]
Total Net Profit: $1,846.40 ($336.30+$750.00+$760.10)

ANNUALIZED RETURN ON INVESTMENT:

($1,846.40/$27,979.95)*(365/26) = 92.6%


2. Merck -- Closed
The 'Transactions History' below shows that MRK stock was in-the-money on Oct07 expiration Friday, but a decision was made to keep the stock and to simultaneously roll up to the 52.5s and out to the Nov07 calls. Shortly thereafter, a roll up from the Nov 52.5 to the Nov 57.5 was transacted. The stock closed in-the-money at the November expiration Friday, so the option was exercised and the stock was sold at the $57.50 option price.

Transactions History
9/7/07 Initial Stock Position -- Bought 500 MRK @ $49.97
9/7/07 Initial Call Options -- Sold 5 MRK Oct07 50 Calls @ $1.85
10/19/07 Roll Up to 52.5s and Out to Nov. -- BTC 5 MRK Oct 50s @ $3.90
10/19/07 Roll Up to 52.5s and Out to Nov. -- STO 5 MRK Nov 52.5s @ $2.40
10/26/07 Roll Up -- BTC 5 MRK Nov 52.5s @ $5.20
10/26/07 Roll Up -- STO 5 MRK Nov 57.5s @ $1.30
Note: MRK stock was trading at $57.40 when this 10/26 roll up transaction was executed.
11/17/07 Options Exercised -- STC 500 MRK @ $57.50

Performance Results(including commissions):
Stock Purchase Cost: $24,994.95
($49.97*500+$9.95 commission)

Net Profit:
(a) Options Income: -$1,843.50
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) plus 3rd Options Write Income $636.30 ($1.30*500-$13.70) = -$1,843.50 ($911.30-$1,963.70+$1,186.30-$2,613.70+$636.30)
(b) Capital Appreciation: $3,765.00 ($57.50-$49.97)*500
Total Net Profit: $1,921.50 (+$3,765.00-$1,843.50)

ANNUALIZED RETURN ON INVESTMENT:
(1,921.50/24,994.95)*(365/71 days) = 39.5%

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