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Friday, September 5, 2008

Roll-Up of SunTrust Banks Inc Covered Calls

Today, with the price of STI at $45.41, a roll-up spread transaction was executed as follows:
9/5/08 Executed debit spread transaction by simultaneously Buying-to-Close 3 STI Sep08 $40 Calls and Selling-to-Open 3 STI Sep08 $45 Calls. The net debit price was $3.70 ($6.11-$2.41). The ‘net debit to strike price difference ratio’ was 70% [($6.11-$2.41)/($45.00-$40.00)]*100, which achieved this advisor’s desired minimum threshold of <75% before executing a roll-up.

The transactions history to date is:
08/19/08 Bought 300 STI @ $39.91
08/19/08 Sold 3 STI Sep08 $40.00 Calls @ $2.70
Note: Annualized return below includes $.77 ex-dividend on 8/28/08
9/5/08 Roll-Up Transaction (executed as a Debit Spread):
Bought to close 3 STI Sep08 $40.00 Calls @ $6.11
Sold to open 3 STI Sep08 $45.00 Calls @ $2.41

The annualized return below demonstrates the potential for extraordinary returns that can be achieved if a covered calls roll-up transaction is successful (i.e. exercised at the new, higher strike price):
Annualized Return If Exercised: +138.9%
Downside Breakeven Protection: 12.0%

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