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Saturday, February 16, 2008

February 2008 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of 7 positions with February 2008 expirations, with the following results:

- 5 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:

Endo Pharmaceuticals +18.1%
Halliburton -5.8%
Kinetic Concepts -25.6%
Lockheed Martin -8.0%
RenaissanceRe Holdings -4.5%

The net losses in HAL, KCI, LMT, and RNR are each examples of managing covered call positions in a declining stock. In each instance, covered call positions were rolled down-and-out in order to obtain sufficient options income to lessen the extent of the overall loss caused by the recent decline in the stock market in general and in these four stocks in particular.

- 2 positions (HLF and EWY) ended out-of-the-money. Decisions will be made to either sell the stock, or to keep the stock and sell calls to establish Mar08 covered call positions. The related transactions will be made during the upcoming week and the actual transactions will be posted on this blog site on the same day they occur.

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

1. Endo Pharmaceuticals -- Closed
A covered calls position in ENDP was established in the CCAP on 01/08/08 and the stock closed in-the-money yesterday (expiration Friday):

Transactions History:
01/08/08 Initial Stock Position -- Bought 500 ENDP @ $27.01
01/08/08 Initial Call Options -- Sold 5 ENDP Feb08 25 Calls @ $2.60
02/16/08 Options Exercised -- STC 500 ENDP @ $25.00
[Note: ENDP stock closed on expiration Friday (2/15/08) at $25.16]

Performance Results(including commissions):
Stock Purchase Cost: $13,514.95
($27.01*500+$9.95 commission)

Net Profit:
(a) Options Income: +$1,286.30 ($2.60*500-$13.70 commission)
(b) Dividend Income: $0
(c) Capital Appreciation: -$1,024.90 [($25.00*500-$9.95)-$13,514.95]
Total Net Profit: +261.40 ($1,286.30-$1,024.90)

ENDP ANNUALIZED RETURN ON INVESTMENT: +18.1%
(+$261.40/$13,514.95)*(365/39)


2. Halliburton -- Closed
A covered calls position in HAL was first established in the CCAP on 10/24/07. The stock was retained for writing November, December, January, and February covered calls. The stock closed in-the-money yesterday (expiration Friday) and the position was closed. The transactions for HAL covered calls were as follows:

The Transactions History to date is as follows:
10/24/07 Initial Stock Position -- Bought 700 HAL @ $40.01
10/24/07 Initial Call Options -- Sold 7 HAL Nov07 40 Calls @ $1.25
11/17/07 Nov07 Option Expiration Date – HAL closed below the strike price at $37.02
11/19/07 Covered Calls Continuation Transaction -- STO 5 Dec07 37.5 Calls @ $.85
11/29/07 Ex-Dividend Date -- $.09*700 shares
12/22/07 Dec07 Option Expiration Date – HAL closed below the strike price at $37.29
12/26/07 Covered Calls Continuation Transaction -- STO 7 Jan08 37.5 Calls @ $1.05
01/19/08 Jan08 Options Expiration Date – HAL closed below the strike price at $32.40
01/25/08 Covered Calls Continuation Transaction -- STO 7 Feb08 35 Calls @ $1.15
02/16/08 Options Exercised -- STC 700 HAL @ $35.00
[Note: HAL stock closed on expiration Friday (2/15/08) at $35.84]

Performance Results(including commissions):
Stock Purchase Cost: $28,016.95
($40.01*700+$9.95 commission)

Net Profit:
(a) Options Income: $2,949.20 (700*$1.25 + 700*.85 + 700*1.05 + 700*1.15 - 4*15.20 commissions)
(b) Dividend Income: $63.00 ($.09*700 shares)
(c) Capital Appreciation): -$3,526.90
= ($35.00-$40.01)*700 - 2*9.95 commissions

Total Net Profit: -$514.70
= ($2,949.20+$63.00-$3,526.90)

HAL ANNUALIZED RETURN ON INVESTMENT: -5.8%
(-$514.70/$28,016.95)*(365/115)


3. Kinetic Concepts Inc. -- Closed
A covered calls position in KCI was established in the CCAP on 11/20/07. The stock was retained for writing December, January, and February covered calls. The stock closed in-the-money yesterday (expiration Friday):

The Transactions History to date is as follows:

11/20/07 Initial Stock Position -- Bought 400 KCI @ 59.53
11/20/07 Initial Call Options -- Sold 4 KCI Dec07 60 Calls @ $2.35
12/22/07 Dec07 Option Expiration Date – KCI closed below the strike price at $54.25
12/26/07 Covered Calls Continuation Transaction -- STO 4 Jan08 55 Calls @ $1.95
01/19/08 Jan08 Options Expiration Date -- KCI closed below the strike price at $50.02
01/28/08 Covered Calls Continuation Transaction -- STO 4 Feb08 50 Calls @ $1.70
02/16/08 Options Exercised -- STC 400 KCI @ $50.00
[Note: KCI stock closed on expiration Friday (2/15/08) at $51.38]

Performance Results(including commissions):
Stock Purchase Cost: $23,821.95
($59.53*400+$9.95 commission)

Net Profit:
(a) Options Income: $2,361.15 (400*$2.35 + 400*$1.95 + 400*$1.70 - 3*$12.95 commissions)
(b) Dividend Income: $0
(c) Capital Appreciation: -$3,831.90
= ($50.00-$59.53)*400 - 2*$9.95 commissions

Total Net Profit: -$1,470.75
= ($2,361.15 + $0 - $3,831.90)

KCI ANNUALIZED RETURN ON INVESTMENT: -25.6%
(-$1,470.75/$23,821.95)*(365/88)


4. Lockheed Martin -- Closed
A covered calls position in LMT was established in the CCAP on 01/08/08. The stock was retained for writing both January and February covered calls. The stock closed in-the-money yesterday (expiration Friday):

A summary of the LMT transactions to date, including today's roll up is as follows:
1/10/08 Initial Stock Position -- BTO 200 LMT @ $109.62
1/10/08 Initial Call Options -- STO 2 LMT Jan08 110 Calls @ $1.70
01/19/08 Jan08 Options Expiration Date – LMT closed below the strike price at $101.88
01/22/08 Covered Calls Continuation Transaction -- STO 2 Feb08 105 Calls @$2.20
02/16/08 Options Exercised -- STC 200 LMT @ $105.00
[Note: LMT stock closed on expiration Friday (2/15/08) at $105.76]

Performance Results(including commissions):
Stock Purchase Cost: $21,933.95
($109.62*200+$9.95 commission)

Net Profit:
(a) Options Income: $757.10 (200*$1.70 + 200*$2.20 - 2*$11.45 commissions)
(b) Dividend Income: $0
(c) Capital Appreciation: -$933.95 ($105.00-$109.62)*200 - $9.95

Total Net Profit: -$176.85
=(-$933.95+$757.10)

LMT ANNUALIZED RETURN ON INVESTMENT: -8.0%
=(-$176.85/$21,933.95)*(365/37)


5. RenaissanceRe Holdings -- Closed
A covered calls position in RNR was established in the CCAP on 12/27/08. The stock was retained for writing both January and February covered calls. The stock closed in-the-money yesterday (expiration Friday).

The Transactions History to date is as follows:
12/27/07 Initial Stock Position -- Bought 400 RNR @ 60.64
12/27/07 Initial Call Options -- Sold 4 RNR Jan08 60 Calls @ $2.60
01/19/08 Jan08 Options Expiration Date – RNR closed below the strike price at $54.01
01/22/08 Covered Calls Continuation Transaction -- STO 4 Feb08 55 Calls @ $2.75
02/16/08 Options Exercised -- STC 400 RNR @ $55.00
[Note: RNR stock closed on expiration Friday (2/15/08) at $55.99]

Performance Results(including commissions):
Stock Purchase Cost: $24,265.95
($60.64*400+$9.95 commission)

Net Profit:
(a) Options Income: $2,114.10 (400*$2.60 + 400*$2.75 - 2*$12.95 commissions)
(b) Dividend Income: $0
(c) Capital Appreciation: -$2,265.95 ($55.00-$60.64)*400 - $9.95
Total Net Profit: -$151.85 ($2,114.10-$2,265.95)

RNR ANNUALIZED RETURN ON INVESTMENT: -4.5%
=(-$151.85/$24,265.95)*(365/51)

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