Saturday, December 22, 2007

December 2007 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of 9 positions with Dec07 expirations, with the following results:

- 4 positions closed in-the-money and the calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for these positions were:
Celanese -- +122.4%
Honeywell -- +12.9%
Humana -- +77.7%
Intel -- +29.1%

- 5 positions (HAL,HPQ,EWY,KCI, and TRV) ended out-of-the-money. Decisions will be made to either sell the stock, or to keep the stock and sell calls to establish Jan08 covered call positions. The related transactions will be made during the upcoming week and the actual transactions will be posted herein on the same day they occur.


Details for each of the four exercised positions were as follows:

1. Celanese -- Closed
A covered calls position in CE was established in the CCAP on 11/20/07 and the stock closed in-the-money yesterday (expiration Friday):

Transactions History:
11/20/07 Initial Stock Position -- Bought 200 CE @ 36.56
11/20/07 Initial Call Options -- Sold 2 CE Dec07 40 Calls @ $.60
12/22/07 Options Exercised -- STC 200 CE @ $40.00

Performance Results(including commissions):
Stock Purchase Cost: $7,321.95
($36.56*200+$9.95 commission)

Net Profit:
(a) Options Income: $108.55 ($.60*200-$11.45 commission)
(b) Dividend Income: $0
(c) Capital Appreciation: $678.05 [($40.00*200-$9.95)-$7,321.95]
Total Net Profit: $786.60 ($108.55+$0+$678.05)

CE ANNUALIZED RETURN ON INVESTMENT: +122.4%
($786.60/$7,321.95)*(365/32)

2. Honeywell -- Closed
A covered calls position in HON was first established in the CCAP on 9/10/07. The stock was retained for writing October, November, and December covered calls. The stock closed in-the-money yesterday (expiration Friday) and the position was closed. The transactions for HON covered calls were as follows:

Transactions History:
9/10/07 Initial Stock Position -- BTO 500 HON @ 54.23
9/10/07 Initial Call Options -- 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 this roll-up transaction was made.
11/16/07 Dividend Received -- 500 @ $.25
11/17/07 Nov07 Option Expiration Date – HON closed below the strike price at $55.88
11/19/07 Covered Calls Continuation Transaction -- STO 5 Dec07 57.5 Calls @ $.90
12/22/07 Options Exercised -- STC 500 HON @ $57.50

Performance Results(including commissions):
Stock Purchase Cost: $27,124.95
($54.23*500+$9.95 commission)

Net Profit:
(a) Options Income: -$704.80
(b) Dividend Income: $125.00 ($.25*500)
(c) Capital Appreciation: $1,565.10
Total Net Profit: $985.30 (-$704.80+$125.00+$1,565.10)

HON ANNUALIZED RETURN ON INVESTMENT: +12.9%
($985.30/$27,124.95)*(365/103)

3. Humana -- Closed
A covered calls position in HUM was established in the CCAP on 11/20/07 and the stock closed in-the-money yesterday (expiration Friday):

Transactions History:
11/20/07 Initial Stock Position -- Bought 500 HUM @ 71.60
11/20/07 Initial Call Options -- Sold 5 HUM Dec07 75 Calls @ $1.70
12/22/07 Options Exercised -- STC 500 HUM @ $75.00

Performance Results(including commissions):
Stock Purchase Cost: $35,809.95
($71.60*500+$9.95 commission)

Net Profit:
(a) Options Income: $836.30 ($1.70*500-$13.70 commission)
(b) Dividend Income: $0
(c) Capital Appreciation: $1,680.10 [($75.00*500-$9.95)-$35,809.95]
Total Net Profit: $2,516.40 ($836.30+$0+$1,680.10)

HUM ANNUALIZED RETURN ON INVESTMENT: +77.7%
($2,516.40/$35,809.95)*(365/33)

4. Intel -- Closed
A covered calls position in INTC was established in the CCAP on 10/22/07 and the stock closed in-the-money on expiration Friday:

Transactions History:
11/20/07 Initial Stock Position -- Bought 1000 INTC @ 25.59
11/20/07 Initial Call Options -- Sold 10 INTC Dec07 25 Calls @ $1.28
12/22/07 Options Exercised -- STC 1000 INTC @ $25.00

Performance Results(including commissions):
Stock Purchase Cost: $25,599.95
($25.59*1000+$9.95 commission)

Net Profit:
(a) Options Income: $1,262.55 ($1.28*1000-$17.45 commission)
(b) Dividend Income: $0
(c) Capital Appreciation: -$609.90 [($25.00*1000-$9.95)-$25,599.95]
Total Net Profit: $652.65 ($1,262.55+$0-$609.90)

INTC ANNUALIZED RETURN ON INVESTMENT: +29.1%
($652.65/$25,599.95)*(365/32)

The Celanese and Humana results show the large annualized returns that can be achieved by writing deep out-of-the-money calls on rapidly appreciating stocks.

The Honeywell covered calls was a highly-managed holding, including transactions through three sequential expiration months as well as roll-ups. The overall result was satisfactory; however, in this case, a greater return would have been achieved had the roll-up transactions not been transacted.

The Intel position shows that a good annualized return (29.1%) is achievable with in-the-money covered calls when the options expire in-the-money. A good net profit is achieved since the net loss in the stock position is more than offset by the options income received.

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