Monday, December 24, 2007

Travelers -- Closed

The covered call position in Travelers (TRV) expired out-of-the-money last Friday. The investment in TRV was closed today by selling the stock. This decision was made because the annualized return if the stock price is unchanged (ARIU) between today and the Jan08 expiration for all potential TRV covered calls did not reach the required threshold for an investment by the Covered Calls Advisor of >25%. The transactions and results achieved for the TRV covered calls position closed today was as follows:

Transactions History:
11/19/07 Initial Stock Position -- Bought 500 TRV @ 51.23
11/19/07 Initial Call Options -- Sold 5 TRV Dec07 55 Calls @ $.55
12/06/07 Dividend Received -- 500 @ $.29
12/21/07 Call Options Expire
12/24/07 Closing Transaction -- Sold 500 TRV @ 54.67

Performance Results(including commissions):
Stock Purchase Cost: $25,624.95
($51.23*500+$9.95 commission)

Net Profit:
(a) Options Income: +$261.30 ($.55*500-13.70)
(b) Dividend Income: +$145.00 ($.29*500)
(c) Capital Appreciation: +$1,710.05 ($54.67-$51.23)*500-$9.95
Total Net Profit: $2,116.35 (+$261.30+$145.00+$1,710.05)

TRV ANNUALIZED RETURN ON INVESTMENT: +86.1%
($2,116.35/$25,624.95)*(365/35)

A recent article described the opportunity provided by covered calls to obtain profits from three sources -- options income; dividend income; and capital appreciation in the underlying stock. Although it is uncommon to achieve profits from all three sources in a single near-month covered call position, this Travelers investment shows that it can be done. Also, the corresponding annualized return on investment (86.1% in this instance) can be very high when this triple-income result does occur.

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