A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) as follows:
Lockheed Martin Corp Covered Calls Established for Jan08
01/10/08 Bought 200 LMT @ $109.62
01/10/08 Sold 2 LMT Jan08 110 Calls @ $1.70
Annualized Return If Unchanged: 62.9%
Annualized Return If Exercised: 77.0%
Downside Breakeven Protection: 1.6%
The Covered Calls Advisor normally establishes near-month covered call positions as long as there is a week or more remaining until the expiration date. So, although there are only 9 calendar days until the Jan08 expiration date, a Jan08 covered calls position was established. The expectation is that the LMT holding will be brief and will be liquidated at January expiration on 1/19/08 since the next quarterly earnings release will be 1/24/08 and this advisor prefers to avoid holding stocks on the day their earnings are released.
Additionally, the premium received from writing the Jan08 calls today was very attractive since the implied volatility of the Jan08 calls was 21% higher than the 90-day historic volatility of the LMT stock. This situation in conjunction with the short time horizon of the position explains the relatively high potential return-on-investment percents for this particular covered calls investment.