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Monday, December 28, 2009

Continuation Transaction -- Sohu.com Inc.

Today, the Covered Calls Advisor Portfolio(CCAP) established a covered calls position in Sohu.com Inc.(SOHU) by selling 2 Jan2010 options against the 200 shares owned in Sohu.com Inc. as follows:

12/28/09 Sell-to-Open (STO) 2 SOHU Jan2010 $60.00s @ $.85

The transactions history to date and the profit potential for the continuation covered calls position in SOHU is as follows:
10/16/09 Bought 200 SOHU @ $64.05
10/16/09 Sold 2 SOHU Nov09 $65.00 Calls @ $3.50
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 2 SOHU Dec09 $60.00s @ $.75
Note: Price of SOHU was $55.10 when the Dec09 options were sold.
12/19/09 Dec09 Options Expired
12/28/09 Sell-to-Open (STO) 2 SOHU Jan2010 $60.00s @ $.85
Note: Price of SOHU was $57.52 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the SOHU transactions would be as follows:
Stock Purchase Cost: $12,818.95
= ($64.05*200+$8.95 commission)

Net Profit:
(a) Options Income: +$988.65
= (200*($3.50+$.75+$.85) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $57.52):
-$1,314.95 = ($57.52-$64.05)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $60.00): -$818.95
= ($60.00-$64.05)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $57.52): -$326.30
= (+$988.65 +$0.00 -$1,314.95)
Total Net Profit(If stock exercised at $60.00): +$169.70
= (+$988.65 +$0.00 -$818.95)

Absolute Return if Stock Price Unchanged at $57.52: -2.5%
= -$326.30/$12,818.95
Annualized Return If Unchanged (ARIU): -10.1%
= (-$326.30/$12,818.95)*(365/92 days)

Absolute Return if Stock Exercised at $60.00: +1.3%
= +$169.70/$12,818.95
Annualized Return If Exercised (ARIE): +5.3%
= (+$169.70/$12,818.95)*(365/92 days)

Thursday, December 24, 2009

Continuation Transactions -- Fuqi International Inc.(FUQI) and iShares MSCI China ETF(FXI)

Last Friday was expiration Friday for December 2009 options. In a Covered Calls Advisor's blog recent post, it was noted that of the thirteen covered calls positions for December 2009: (1) Six were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Seven positions ended out-of-the-money. Earlier this week, four of the total of seven out-of-the-money equities (Amgen, Noble Corp, China Unicom, and iShares MSCI South Korea ETF) were retained and Jan2010 covered calls positions were established. Today, it was decided to also retain two additional Dec09 out-of-the-money equities (Fuqi International Inc. and iShares MSCI China ETF) and Jan2010 covered calls were established. Detailed explanations of the covered calls positions established today for FUQI and FXI are as follows:

1. Fuqi International Inc.(FUQI) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Fuqi International Inc.(FUQI) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 200 shares of Fuqi International Inc.(FUQI) and to establish a Jan2010 covered calls position as follows:

12/24/09 Sell-to-Open (STO) 2 FUQI Jan2010 $20.00s @ $.70

The transactions history to date and the profit potential for the continuation covered calls position in CHU is as follows:
10/16/09 Bought 200 FUQI @ $25.45
10/16/09 Sold 2 FUQI Nov09 $26.00 Calls @ $2.00
11/21/09 Nov09 Options Expired
12/03/09 Sell-to-Open (STO) 2 FUQI Dec09 $22.50s @ $.35
Note: The price of FUQI was $20.84 today when this transaction was made.
12/19/09 Dec09 Options Expired
12/24/09 Sell-to-Open (STO) 2 FUQI Jan2010 $20.00s @ $.70
Note: Price of FUQI was $19.32 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the FUQI transactions would be as follows:
Stock Purchase Cost: $5,098.95
= ($25.45*200+$8.95 commission)

Net Profit:
(a) Options Income: +$578.65
= (200*($2.00+$.35+$.70) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $19.32):
-$1,234.95 = ($19.32-$25.45)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $20.00): -$1,098.95
= ($20.00-$25.45)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $19.32): -$656.30
= (+$578.65 +$0.00 -$1,234.95)
Total Net Profit(If stock exercised at $22.50): -$520.30
= (+$578.65 +$0.00 -$1,098.95)

Absolute Return if Stock Price Unchanged at $19.32: -12.9%
= -$656.30/$5,098.95
Annualized Return If Unchanged (ARIU): -51.1%
= (-$656.30/$5,098.95)*(365/92 days)

Absolute Return if Stock Exercised at $20.00: -10.2%
= -$520.30/$5,098.95
Annualized Return If Exercised (ARIE): -40.5%
= (-$520.30/$5,098.95)*(365/92 days)

2. iShares MSCI China ETF(FXI) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in iShares MSCI China ETF(FXI) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 1,000 shares of iShares MSCI China ETF(FXI) and to establish a Jan2010 covered calls position as follows:

12/24/09 Sell-to-Open (STO) 10 FXI Jan2010 $4363.00s @ $.63

The transactions history to date and the profit potential for the continuation covered calls position in CHU is as follows:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44
11/27/09 Bought 400 FXI @ $42.54
11/27/09 Sold 4 FXI Dec09 $44.00 Calls @ $1.13
12/19/09 Dec09 Options Expired
12/24/09 Sell-to-Open (STO) 10 FXI Jan2010 $43.00s @ $.63
Note: Price of FXI was $42.22 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the FXI transactions would be as follows:
Stock Purchase Cost: $44,357.90
= ($45.54*600+$42.54*400+2*$8.95 commission)

Net Profit:
(a) Options Income: +$1,914.65
= (600*($1.44+$.63)+400*($1.13+$.63) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $42.22):
-$2,128.95 = [($42.22-$45.54)*600-($42.22-$42.54)*400] - $8.95 commissions
(c) Capital Appreciation (If exercised at $43.00): -$1,348.95
= [($43.00-$45.54)*600-($43.00-$42.54)*400] - $8.95 commissions

Total Net Profit(If stock price unchanged at $42.22): -$214.30
= (+$1,914.65 +$0.00 -$2,128.95)
Total Net Profit(If stock exercised at $43.00): +$565.70
= (+$1,914.65 +$0.00 -$1,348.95)

Absolute Return if Stock Price Unchanged at $42.22: -0.5%
= -$214.30/$44,357.90
Annualized Return If Unchanged (ARIU): -3.2%
= (-$656.30/$5,098.95)*(365/55 days)

Absolute Return if Stock Exercised at $43.00: +1.3%
= +$565.70/$44,357.90
Annualized Return If Exercised (ARIE): +8.5%
= (+$565.70/$44,357.90)*(365/55 days)

Tuesday, December 22, 2009

Continuation Transactions -- China Unicom(CHU) and iShares MSCI South Korea Fund (EWY)

This past Friday was expiration Friday for December 2009 options. In a Covered Calls Advisor's blog recent post, it was noted that of the thirteen covered calls positions for December 2009: (1) Six were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Seven positions ended out-of-the-money. Yesterday, two of the total of seven out-of-the-money equities (Amgen and Noble Corp) were retained and Jan2010 covered calls positions were established. Today, it was decided to also retain two additional Dec09 out-of-the-money equities (China Unicom Ltd. and iShares MSCI South Korea ETF) and Jan2010 covered calls were established. Detailed explanations of the covered calls positions established today for CHU and EWY are as follows:

1. China Unicom Ltd.(CHU) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in China Unicom Ltd.(CHU) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 500 shares of China Unicom Ltd.(CHU) and to establish a Jan2010 covered calls position as follows:

12/22/09 Sell-to-Open (STO) 5 CHU Jan2010 $12.50s @ $.40

The transactions history to date and the profit potential for the continuation covered calls position in CHU is as follows:
10/22/09 Bought 500 CHU @ $13.73
10/22/09 Sold 5 CHU Nov09 $15.00 Calls @ $.20
11/21/09 Nov09 Options Expired
11/23/09 Sold 5 CHU Dec09 $15.00 Calls @ $.15
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 5 CHU Jan2010 $12.50s @ $.40
Note: Price of CHU was $12.52 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the CHU transactions would be as follows:
Stock Purchase Cost: $6,873.95
= ($13.73*500+$8.95 commission)

Net Profit:
(a) Options Income: +$336.90
= (500*($.20+$.15+$.40) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock exercised at $12.50): -$623.95
= ($12.50-$13.73)*500 - $8.95 commissions

Total Net Profit(If stock exercised at $12.50): -$287.05
= (+$336.90 +$0.00 -$623.95)

Absolute Return if Stock Exercised at $12.50: -4.2%
= (-$287.05/$6,873.95)
Annualized Return If Exercised (ARIE): -17.7%
= (-$287.05/$6,873.95)*(365/86 days)


2. iShares MSCI South Korea ETF(EWY) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in iShares MSCI South Korea ETF(EWY) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 400 shares of iShares MSCI South Korea ETF(EWY) and to establish a Jan2010 covered calls position as follows:

12/22/09 Sell-to-Open (STO) 4 EWY Jan2010 $47.00s @ $1.00

The transactions history to date and the profit potential for the continuation covered calls position in EWY is as follows:
11/17/09 Bought 400 EWY @ $45.59
11/17/09 Sold 4 EWY Dec09 $46.00 Calls @ $1.70
12/19/09 Dec09 Options Expired
12/22/09 Sell-to-Open (STO) 4 EWY Jan2010 $47.00s @ $1.00
Note: The price of EWY was $46.35 today when the options were sold.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $18,244.95
= ($45.59*400+$8.95 commission)

Net Profit:
(a) Options Income: +$1,056.10
= (400*($1.70+$1.00) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $46.35):
-$8.95 = ($46.35-$46.35)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $47.00): +$555.05
= ($47.00-$45.59)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.35): +$1,047.15
= (+$1,056.10 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $47.00): +$1,611.15
= (+$1,056.10 +$0.00 +$555.05)

Absolute Return if Unchanged at $46.35: +5.7%
= +$1,047.15/$18,244.95
Annualized Return If Unchanged (ARIU) +34.9%
= (+$1,047.15/$18,244.95)*(365/60 days)

Absolute Return if Exercised at $47.00: +8.8%
= +$1,611.15/$18,244.95
Annualized Return If Exercised (ARIE) +53.7%
= (+$1,611.15/$18,244.95)*(365/60 days)

Monday, December 21, 2009

Establish Quanta Services Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Quanta Services Inc.(PWR) covered calls as follows:

Established Quanta Services Inc.(PWR) Covered Calls for Feb2010:
12/21/09 Bought 300 PWR @ $20.80
12/21/09 Sold 3 PWR Feb2010 $22.50 Calls @ $.50

Some possible overall performance results(including commissions) for the PWR transactions would be as follows:
Stock Purchase Cost: $6,248.95
= ($20.80*300+$8.95 commission)

Net Profit:
(a) Options Income: +$138.80
= (300*$.50 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $20.80):
-$8.95 = ($20.80-$20.80)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $22.50): +$501.05
= ($22.50-$20.80)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.80): +$129.85
= (+$138.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $22.50): +$639.85
= (+$138.80 +$0.00 +$501.05)

Absolute Return if Unchanged at $20.80: +2.1%
= +$129.85/$6,248.95
Annualized Return If Unchanged (ARIU) +12.1%
= (+$129.85/$6,248.95)*(365/61 days)

Absolute Return if Exercised at $45.00: +10.2%
= +$639.85/$6,248.95
Annualized Return If Exercised (ARIE) +61.3%
= (+$639.85/$6,248.95)*(365/61 days)

Establish iShares MSCI Brazil Index Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI Brazil Index (EWZ) covered calls as follows:

Established iShares MSCI Brazil Index (EWZ) Covered Calls for Jan2010:
12/21/09 Bought 200 EWZ @ $74.48
12/21/09 Sold 2 EWZ Jan2010 $76.00 Calls @ $1.67

Some possible overall performance results(including commissions) for the EWZ transactions would be as follows:
Stock Purchase Cost: $14,904.95
= ($74.48*200+$8.95 commission)

Net Profit:
(a) Options Income: +$323.55
= (200*$1.67 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $74.48):
-$8.95 = ($74.48-$74.48)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $76.00): +$295.05
= ($76.00-$74.48)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $74.48): +$314.60
= (+$323.55 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $76.00): +$618.60
= (+$323.55 +$0.00 +$295.05)

Absolute Return if Unchanged at $74.48: +2.1%
= +$314.60/$14,904.95
Annualized Return If Unchanged (ARIU) +29.6%
= (+$234.85/$14,904.95)*(365/26 days)

Absolute Return if Exercised at $76.00: +4.2%
= +$618.60/$14,904.95
Annualized Return If Exercised (ARIE) +58.3%
= (+$618.60/$14,904.95)*(365/26 days)

Establish Ensco International Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Ensco International Inc.(ESV) covered calls as follows:

Established Ensco International Inc.(ESV) Covered Calls for Jan2010:
12/21/09 Bought 200 ESV @ $42.40
12/21/09 Sold 2 ESV Jan2010 $45.00 Calls @ $.70

Some possible overall performance results(including commissions) for the ESV transactions would be as follows:
Stock Purchase Cost: $8,488.95
= ($42.40*200+$8.95 commission)

Net Profit:
(a) Options Income: +$129.55
= (200*$.70 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $42.40):
-$8.95 = ($42.40-$42.40)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $45.00): +$511.05
= ($45.00-$42.40)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $42.40): +$120.60
= (+$129.55 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $45.00): +$640.60
= (+$129.55 +$0.00 +$511.05)

Absolute Return if Unchanged at $42.40: +1.4%
= +$120.60/$8,488.95
Annualized Return If Unchanged (ARIU) +19.9%
= (+$120.60/$8,488.95)*(365/26 days)

Absolute Return if Exercised at $45.00: +7.5%
= +$640.60/$8,488.95
Annualized Return If Exercised (ARIE) +105.9%
= (+$640.60/$8,488.95)*(365/26 days)

Establish Market Vectors Russia ETF Covered Calls


A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Market Vectors Russia ETF (RSX) covered calls as follows:

Established Market Vectors Russia ETF (RSX) Covered Calls for Jan2010:
12/21/09 Bought 300 RSX @ $31.32
12/21/09 Sold 3 RSX Jan2010 $32.00 Calls @ $.85

Some possible overall performance results(including commissions) for the RSX transactions would be as follows:
Stock Purchase Cost: $9,404.95
= ($31.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$243.80
= (300*$.85 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $31.32):
-$8.95 = ($31.32-$31.32)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $32.00): +$195.05
= ($32.00-$31.32)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $31.32): +$234.85
= (+$243.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $32.00): +$438.85
= (+$243.80 +$0.00 +$195.05)

Absolute Return if Unchanged at $31.32: +2.5%
= +$234.85/$9,404.95
Annualized Return If Unchanged (ARIU) +35.1%
= (+$234.85/$9,404.95)*(365/26 days)

Absolute Return if Exercised at $32.00: +4.7%
= +$438.85/$9,404.95
Annualized Return If Exercised (ARIE) +65.5%
= (+$438.85/$9,404.95)*(365/26 days)

Continuation Transactions -- Amgen Inc.(AMGN) and Noble Corporation (NE)

This past Friday was expiration Friday for December 2009 options. In a Covered Calls Advisor's blog recent post, it was noted that of the thirteen covered calls positions for December 2009: (1) Six were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Seven positions ended out-of-the-money. Today, it was decided to retain two of the total of seven out-of-the-money equities (Amgen and Noble Corp) in the CCAP and to establish Jan2010 covered calls positions. Decisions regarding the remaining five equities to either sell them or to retain them and establish Jan2010 covered calls positions will be made in the next few days and the associated actual transactions will be posted on this blog site on the same day they occur. Detailed explanations of the covered calls positions established today for AMGN and NE are as follows:

1. Amgen Inc.(AMGN) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Amgen Inc.(AMGN) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 200 shares of Amgen Inc.(AMGN) and to establish a Jan2010 covered calls position as follows:

12/21/09 Sell-to-Open (STO) 2 AMGN Jan2010 $57.50s @ $1.14

The transactions history to date and the profit potential for the continuation covered calls position in AMGN is as follows:
10/22/09 Bought 200 AMGN @ $56.40
10/22/09 Sold 2 AMGN Nov09 $57.50 Calls @ $1.20
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 AMGN Dec09 $57.50s @ $.93
Note: Price of AMGN was $56.15 when the Dec09 options were sold.
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 2 AMGN Jan2010 $57.50s @ $1.14
Note: Price of AMGN was $56.80 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the AMGN transactions would be as follows:
Stock Purchase Cost: $11,288.95
= ($56.40*200+$8.95 commission)

Net Profit:
(a) Options Income: +$622.65
= (200*($1.20+$.93+$1.14) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $56.80): +$71.05
= ($56.80-$56.40)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $57.50): +$211.05
= ($57.50-$56.40)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $56.80): +$693.70
= (+$622.65 +$0.00 +$71.05)
Total Net Profit(If stock exercised at $57.50): +$833.70
= (+$622.65 +$0.00 +$211.05)

Absolute Return if Stock Price Unchanged at $56.80: +6.1%
= +$693.70/$11,288.95
Annualized Return If Unchanged (ARIU): +26.1%
= (+$693.70/$11,288.95)*(365/86 days)

Absolute Return if Stock Exercised at $57.50: +7.4%
= (+$833.70/$11,288.95)
Annualized Return If Exercised (ARIE): +31.3%
= (+$833.70/$11,288.95)*(365/86 days)

2. Noble Corporation(NE) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Noble Corp.(NE) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 300 shares of Noble Corp.(NE) and to establish a Jan2010 covered calls position as follows:

12/21/09 Sell-to-Open (STO) 3 NE Jan2010 $43.00s @ $.90

The transactions history to date and the profit potential for the continuation covered calls position in NE is as follows:
09/02/09 Bought 300 NE @ $33.98
09/02/09 Sold 3 NE Sep09 $34.00 Calls @ $1.30
Roll-Up-and-Out Transaction:
09/17/09 Buy-to-Close (BTC) 3 NE Sep09 $34.00s @ $5.22
09/17/09 Sell-to-Open (STO) 3 NE Oct09 $36.00s @ $3.87
Note: The price of NE was $39.19 today when this debit-spread was transacted and the remaining time value in the Sep09 option was only $.03 [$5.22-($39.19-$34.00)].
Roll-Up-and-Out Transaction:
10/16/09 Buy-to-Close (BTC) 3 NE Oct09 $36.00s @ $5.60
10/16/09 Sell-to-Open (STO) 3 NE Nov09 $42.00s @ $1.75
Note: The price of NE was $41.56 today when this transaction occurred.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 NE Dec09 $42.00s @ $1.45
Note: Price of NE was $41.30 when the Dec09 options were sold.
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 3 NE Jan2010 $43.00s @ $.90
Note: Price of NE was $41.75 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the NE transactions would be as follows:
Stock Purchase Cost: $10,202.95
($33.98*300+$8.95 commission)

Net Profit:
(a) Options Income: -$521.00
= (300*($1.30-$5.22+$3.87-$5.60+$1.75+$1.45+$.90) - 5*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $41.75): +$2,322.05
= ($41.75-$33.98)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $43.00): +$2,697.05
= ($43.00-$33.98)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $41.75): +$1,801.05
= (-$521.00 +$0.00 +$2,322.05)
Total Net Profit(If stock price exercised at $43.00): +$2,176.05
= (-$521.00 +$0.00 +$2,697.05)

Absolute Return if Stock Price Unchanged at $41.75: +17.7%
= +$1,801.05/$10,202.95
Annualized Return If Unchanged (ARIU) +47.4%
= (+$1,801.05/$10,202.95)*(365/136 days)

Absolute Return if Exercised at $43.00: +21.3%
= +$2,176.05/$10,202.95
Annualized Return If Exercised (ARIE) +57.2%
= (+$2,176.05/$10,202.95)*(365/136 days)

Sunday, December 20, 2009

Overall Market Meter -- An Updated Rating Process

The "Overall Market Meter" on the right sidebar of this blog always reflects the Covered Calls Advisor's current overall stock market outlook. Currently, this indicator is "SLIGHTLY BULLISH." This meter also shows each of the seven possible market sentiment indicators: Very Bullish, Bullish, Slightly Bullish, Neutral, Slightly Bearish, Bearish, and Very Bearish. A recent blog article link described the Covered Calls Advisor's preferred covered calls investing strategy for each of these seven possible indicators. To determine which indicator is most representative of this advisor's overall stock market outlook at any given time, a quantitative-based, multi-factor decision model is used.

Since late 2007, the decision model used to determine which one of the seven sentiment indicators is most representative of this Covered Calls Advisor's current "Overall Stock Market Outlook" consisted of a total of six factors. Detailed explanations of each of these factors are presented in these two prior articles on this blog from 2007:
link to "Developing an Overall Market Outlook"
link to "Changes in Overall Market Outlook"

This article describes an update to the rating process that is now being used by the Covered Calls Advisor. The process used to-date has been beneficial, but additional reading on the subject of overall market forecasting has revealed some additional macroeconomic and valuation-based indicators that should further improve the decision model -- which now extends from six factors to a total of nine factors. A summary presentation of the current ratings for each of these nine factors is presented on the chart below. The overall "Market Meter Average" rating shown by the blue line at the bottom of the chart is the average of the nine factors and as such is this advisor's current "Overall Market Meter" rating, which is now closest to "SLIGHTLY BULLISH." The covered calls investing strategy corresponding to this overall Slightly Bullish sentiment is to, on-average, sell 2% out-of-the-money covered calls for the nearest expiration month.






















These nine factors were detailed from four generic categories: macroeconomic, momentum, value, and growth. The first three factors (Bank Lending Practices, Baltic Dry Index, and the Business Cycle-to-Unemployment Comparison Matrix) are macroeconomic indicators. The next two factors (Market Price Trend and Interest Rate Changes) are momentum indicators. The next three factors (Earnings Yield to Bond Yield Spreads, Total Market Index divided by GDP, and Current Versus Expected Price/Earnings Ratios) are valuation-oriented indicators. The ninth and final factor (Market Expected Earnings Growth Rate) is a growth-related metric. For anyone interested in the methods used to obtain the rating for each of the nine factors, the remainder of this article summarizes that process.

1. Bank Lending -- A measure of overall bank lending practices is released quarterly by the Federal Reserve Board in their "Senior Loan Officer Opinion Survey on Bank Lending Practices." The "Chart Data" for large and medium sized firms presents the "Net Percentage of Domestic Respondents Tightening Standards for Commercial and Industrial Loans." Currently, this level is 14.0, which has decreased from an average in the prior three readings of 45.1. Applying this data to this advisor's evaluation matrix below, the current Bank Lending factor has a rating of Neutral:







2. Baltic Dry Index -- This is an index that measures the cost of ocean freight shipping of a variety of dry bulk commodities and is useful for monitoring the relative activity level of worldwide commerce. As such, the current Baltic Dry Index (BDI) is measured relative to the BDI from one year ago. The following ratings apply for this BDI factor:
- More than a 10% increase is Bullish.
- A change between -10% and +10% is Slightly Bullish.
- A decline of more than 10% is Bearish.
The current rating for BDI is more than double that of 12 months ago; thus the BDI factor currently rates as Bullish.

3. Bus. Cycle & Unempl -- This factor looks at the relationship between the current business cycle (either expansion or contraction) and the trend of seasonally-adjusted initial claims for unemployment. The current business cycle is based on the National Bureau of Economic Research's (NBER) determination as to whether the U.S. economy is currently in an expansionary cycle or a contraction cycle. Initial Claims for Unemployment are reported weekly by the Department of Labor and a comparison is made between the current week versus the prior 30-week simple moving average to determine if the unemployment trend is increasing, neutral, or decreasing. Applying this data to this advisor's evaluation matrix below determines the rating for this Business Cycle and Unemployment Claims factor. Currently, NBER rates the economy as being in contraction and unemployment claims are declining, so this factor is currently rated as Bullish:







4. Price Trend -- This is an overall stock market momentum factor and returns either a Bullish or a Bearish result. It compares the current price of the S&P 500 index (SPY) against SPY's prior 150-day simple moving average(SMA). A current reading above the prior 150-day SMA is a Bullish reading and below is a Bearish reading. A 5% tolerance is necessary before a rating change is made. The current Price Trend factor rates as Bullish.

5. Interest Rates -- This factor considers the 5-Year U.S. Treasury Note rate, both on an absolute interest rate level basis as well as whether this current interest rate is increasing, neutral (within + or - 10%), or decreasing relative to the 5-Year Note rate as of 6 months ago. The current interest rate is 2.28% which is neutral compared with the comparable rate 6 months ago. Applying this data to this advisor's evaluation matrix below, the current Interest Rates factor has a rating of Neutral:







6. Erngs-to-Bond Yld Sprd -- This Earnings Yield to Bond Yield Spread factor is similar to what is referred to as the Fed Model. The average bond yield is subtracted from the average earnings yield and is rated based on this advisor's ranges as follows:
Very Bullish if average spread is greater than +3.5%
Bullish if average spread is between +2.5% and +3.5%
Slightly Bullish if average spread is between +1.0% and +2.5%
Neutral if average spread is between -0.2% and +1.0%
Slightly Bearish if average spread is between -1.5% and -0.2%
Bearish if average spread is between -2.5% and -1.5%
Very Bearish if average spread is less than -2.5%
The current average spread is +.78% which is a Neutral rating for this factor.

7. Total Mkt Index/GDP -- This is a very broad overall valuation measure of the U.S. stock market. It is calculated as the Wilshire 5000 Total Market Index divided by the U.S. Gross Domestic Product(in $Billions). The current value of this metric is .797 = 11,373.85/14,266.3. The ratings ranges are as follows:
Very Bullish if <.55
Bullish if .55-.62
Slightly Bullish if .62-.72
Neutral if .72-.81
Slightly Bearish if .81-.92
Bearish if .92-1.09
Very Bearish if >1.09

Thus, the current value of .797 is a Neutral rating for this factor.

8. P/E Ratios -- This is another valuation factor which compares the current Price/Earnings ratio (from Standard & Poor's S&P 500 Operating Earnings (last 2 quarters actual plus next 2 quarters estimated) against the Expected P/E ratio. The Expected P/E ratio is determined based on the trailing twelve months actual inflation [from the Federal Reserve's Trimmed mean Personal Consumption Expenditures(PCE) index]. The relationship between inflation and P/E ratios is determined from Goldman Sachs' research results during the most recent 55 years and is as follows:










In comparing the Expected P/E Ratio to the Current P/E Ratio, the factor rating is:
Very Bullish if the Expected is more than 30% higher than the Current
Bullish if the Expected is between 15% and 30% greater than the Current
Slightly Bullish if the Expected is between 6% and 15% greater than the Current
Neutral if the Expected is between 2% less and 6% greater than the Current
Slightly Bearish if the Expected is between 9% less and 2% less than the Current
Bearish if the Expected is between 20% less and 9% less than the Current
Very Bearish if the Expected is more than 20% less than the Current.

With 12-month PCE Inflation currently at only 1.4%, the corresponding Expected P/E Ratio is 18.6 which is 5.7% greater than the Current P/E of 17.6. Thus the current factor rating for this P/E Ratio metric is Neutral.

9. Earnings -- This is the sole growth-based factor in this decision model and it compares the actual most recent 12 months operating earnings for the S&P 500 companies versus S&P's estimated operating earnings for the next 12 months. The Earnings factor ratings ranges are as follows:
Very Bullish if next year's estimated earnings are more than 30% above the most recent 12 month's actual earnings.
Bullish if next year's estimated earnings are between 15% and 30% above the most recent 12 month's actual earnings.
Slightly Bullish if next year's estimated earnings are between 6% and 15% above the most recent 12 month's actual earnings.
Neutral if next year's estimated earnings are between 2% below and 6% above the most recent 12 month's actual earnings.
Slightly Bearish if next year's estimated earnings are between 9% below and 2% below the most recent 12 month's actual earnings.
Bearish if next year's estimated earnings are between 20% below and 9% below the most recent 12 month's actual earnings.
Very Bearish if next year's estimated earnings are more than 30% below the most recent 12 month's actual earnings.

With the next 12 month's earnings currently expected to be 27% above the most recent 12 month's actual operating earnings, the corresponding rating for this Earnings factor is Bullish.

The nine factors that comprise the "Overall Market Meter" rating will be updated periodically, but no less than once per month. The most current rating will always be shown on the "Overall Market Meter" and shown in the upper right sidebar of this blog.

If you have comments or questions related to the contents of this article, please feel free to submit them by clicking on the "comments" link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site. Your comments are always welcomed.

Regards and Godspeed,
Jeff

Saturday, December 19, 2009

December 2009 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of thirteen positions with December 2009 expirations, with the following results:
- Six positions (ACN, ARO, DRC, EME, RKT, and UNH) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for the six exercised positions were:

Accenture Ltd.(ACN): +42.7%
Aeropostale Inc.(ARO): +83.2%
Dresser-Rand Group Inc.(DRC): +63.9%
EMCOR Group Inc.(EME): +66.6%
Rock-Tenn Co.(RKT): +125.3%
UnitedHealth Group Inc.(UNH): +64.0%

- Seven positions in the CCAP (AMGN, FUQI, FXI, EWY, ITT, NE, and SOHU) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Jan2010 covered call positions. The related transactions will be made this week and the actual transactions will be posted on this blog site on the same day they occur.

Detailed results for the six positions that were assigned (called away) upon Dec09 expiration are as follows:

1. Accenture Ltd.(ACN) -- Closed
The transactions history was as follows:
08/24/09 Bought 300 ACN @ $35.51
08/24/09 Sold 3 ACN Sep09 $35.00 Calls @ $1.15
Roll-Out Transaction:
09/18/09 Buy-to-Close (BTC) 10 ACN Sep09 $35.00s @ $1.10
09/18/09 Sell-to-Open (STO) 10 ACN Oct09 $35.00s @ $1.90
Note: The price of ACN was $36.08 today when this debit-spread was transacted.
10/13/09 Buy-to-Close (BTC) 3 ACN Oct09 $35.00s @ $4.20
10/13/09 Sell-to-Open (STO) 3 ACN Nov09 $40.00s @ $.80
Note: The price of ACN was $39.18 today when this debit-spread was transacted.
10/14/09 $225.00 Ex-Dividend ($.75*300 shares)
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 ACN Dec09 $40.00s @ $1.25
12/19/09 Dec09 Options Exercised (300 shares of ACN called away at $40.00)
Note: Closing price of ACN was $41.37 on expiration Friday.

The overall performance results(including commissions) for the ACN transactions were as follows:
Stock Purchase Cost: $10,661.95
= ($35.51*300+$8.95 commission)

Net Profit:
(a) Options Income: -$104.80
= (300*($1.15-$1.10+$1.90-$4.20+$.80+$1.25) - 4*$11.20 commissions)
(b) Dividend Income: +$225.00 ($.75*300 shares)
(c) Capital Appreciation (Stock exercised at $40.00): +$1,338.05
= ($40.00-$35.51)*300 - $8.95 commissions

Total Net Profit(Stock exercised at $40.00): +$1,458.25
= (-$104.80 +$225.00 +$1,338.05)

Absolute Return (Stock exercised at $40.00): +13.7%
= +$1,458.25/$10,661.95
Annualized Return: +42.7%
= (+$1,458.25/$10,661.95)*(365/117 days)

2. Aeropostale Inc.(ARO) -- Closed
The transactions history was as follows:
11/25/09 Bought 300 ARO @ $30.56
11/25/09 Sold 3 ARO Dec09 $31.00 Calls @ $1.30
12/19/09 Dec09 Options Exercised (300 shares of ARO called away at $31.00)
Note: Closing price of ARO was $32.40 on expiration Friday.

The overall performance results(including commissions) for the ARO transactions were as follows:
Stock Purchase Cost: $9,176.95
= ($30.56*300+$8.95 commission)

Net Profit:
(a) Options Income: +$378.80
= (300*$1.30 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $31.00): +$123.05
= ($31.00-$30.56)*300 - $8.95 commissions

Total Net Profit(Stock exercised at $31.00): +$501.85
= (+$378.80 +$0.00 +$123.05)

Absolute Return (Stock exercised at $31.00): +5.5%
= +$501.85/$9,176.95
Annualized Return: +83.2%
= (+$501.85/$9,176.95)*(365/24 days)

3. Dresser-Rand Group Inc.(DRC) -- Closed
The transactions history was as follows:
11/25/09 Bought 300 DRC @ $29.30
11/25/09 Sold 3 DRC Dec09 $30.00 Calls @ $.60
12/19/09 Dec09 Options Exercised (300 shares of DRC called away at $30.00)
Note: Closing price of DRC was $30.94 on expiration Friday.

The overall performance results(including commissions) for the DRC transactions were as follows:
Stock Purchase Cost: $8,798.95
= ($29.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$168.80
= (300*$.60 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $30.00): +$201.05
= ($30.00-$29.30)*300 - $8.95 commissions

Total Net Profit(Stock exercised at $30.00): +$369.85
= (+$168.80 +$0.00 +$201.05)

Absolute Return (Stock exercised at $30.00): +4.2%
= +$369.85/$8,798.95
Annualized Return: +63.9%
= (+$369.85/$8,798.95)*(365/24 days)

4. EMCOR Group Inc.(EME) -- Closed
The transactions history was as follows:
10/20/09 Bought 400 EME @ $24.35
10/20/09 Sold 4 EME Nov09 $25.00 Calls @ $.85
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 4 EME Dec09 $25.00s @ $1.25
Note: Price of EME was $25.30 when the Dec09 options were sold.
12/19/09 Dec09 Options Exercised (400 shares of EME called away at $25.00)
Note: Closing price of EME was $26.68 on expiration Friday.

The overall performance results(including commissions) for the EME transactions were as follows:
Stock Purchase Cost: $9,748.95
= ($24.35*400+$8.95 commission)

Net Profit:
(a) Options Income: +$816.10
= (400*($.85+$1.25) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $25.00): +$251.05
= ($25.00-$24.35)*400 - $8.95 commissions

Total Net Profit(Stock exercised at $25.00): +$1,067.15
= (+$816.10 +$0.00 +$251.05)

Absolute Return (Stock exercised at $25.00): +10.9%
= +$1,067.10/$9,748.95
Annualized Return: +66.6%
= (+$1,067.10/$9,748.95)*(365/60 days)

5. Rock-Tenn Co.(RKT) -- Closed
The transactions history was as follows:
11/25/09 Bought 300 RKT @ $46.49
11/25/09 Sold 3 RKT Dec09 $50.00 Calls @ $.40
12/19/09 Dec09 Options Exercised (300 shares of RKT called away at $50.00)
Note: Closing price of RKT was $51.72 on expiration Friday.

The overall performance results(including commissions) for the RKT transactions were as follows:
Stock Purchase Cost: $13,955.95
= ($46.49*300+$8.95 commission)

Net Profit:
(a) Options Income: +$108.80
= (300*$.40 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $50.00): +$1,044.05
= ($50.00-$46.49)*300 - $8.95 commissions

Total Net Profit(Stock exercised at $50.00): +$1,152.85
= (+$108.80 +$0.00 +$1,044.05)

Absolute Return (Stock exercised at $50.00): +8.2%
= +$1,152.85/$13,995.95
Annualized Return: +125.3%
= (+$1,152.85/$13,995.95)*(365/24 days)

6. UnitedHealth Group Inc.(UNH) -- Closed
The transactions history was as follows:
09/23/09 Bought 400 UNH @ $27.05
09/23/09 Sold 4 UNH Oct09 $26.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of UNH was $24.45 on expiration Friday.
10/19/09 Sell-to-Open (STO) 4 UNH Nov09 $26.00s @ $.80
The price of UNH was $24.77 today when this transaction was executed.
Roll-Up Transaction:
11/09/09 Buy-to-Close (BTC) 4 UNH Nov09 $26.00s @ $3.15
11/09/09 Sell-to-Open (STO) 4 UNH Nov09 $29.00s @ $.92
Note: Net Debit-Spread upon Roll-Up was $2.23 ($3.15 - $.92) and the price of UNH was $29.02 when this debit-spread was transacted.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 4 UNH Dec09 $30.00s @ $.80
Note: Price of UNH was $29.34 when the Dec09 options were sold.
12/19/09 Dec09 Options Exercised (400 shares of UNH called away at $30.00)
Note: Closing price of UNH was $31.54 on expiration Friday.

The overall performance results(including commissions) for the UNH transactions were as follows:
Stock Purchase Cost: $10,828.95
= ($27.05*400+$8.95 commission)

Net Profit:
(a) Options Income: +$480.20
= (400*($1.95+$.80-$3.15+$.92+$.80) - 4*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $30.00): +$1,171.05
= ($30.00-$27.05)*400 - $8.95 commissions

Total Net Profit(Stock exercised at $30.00): +$1,651.25
= (+$480.20 +$0.00 +$1,171.05)

Absolute Return (Stock exercised at $30.00): +15.2%
= +$1,651.25/$10,828.95
Annualized Return: +64.0%
= (+$1,651.25/$10,828.95)*(365/87 days)

Friday, December 18, 2009

United States Natural Gas Fund (UNG) -- Closed

The Covered Calls Advisor Portfolio (CCAP) covered calls position in the United States Natural Gas Fund (UNG) was closed out by an early exercise yesterday (Thursday).

The transactions history was as follows:
11/18/09 Bought 300 UNG @ $8.96
11/18/09 Sold 3 UNG Dec09 $9.00 Calls @ $.51
12/17/09 Early Exercise -- Sold 300 UNG @ $9.00.
The price of UNG was above $10.00 when the options were exercised yesterday and the stock was called away.

The overall performance results(including commissions) for the UNG transactions were as follows:
Stock Purchase Cost: $2,696.95
= ($8.96*300+$8.95 commission)

Net Profit:
(a) Options Income: +$141.80
= (300*$.51 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $9.00): +$3.05
= ($9.00-$8.96)*300 - $8.95 commissions

Total Net Profit(Stock exercised at $9.00): +$144.85
= (+$141.80 +$0.00 +$3.05)

Absolute Return (Stock Exercised at $9.00: +5.4%
= +$144.85/$2,696.95
Annualized Return: +67.6%
= (+$144.85/$2,696.95)*(365/29 days)

Tuesday, December 15, 2009

Continuation Transaction -- Fluor Corporation

Today, the Covered Calls Advisor Portfolio(CCAP) established a covered calls position in Fluor Corporation (FLR) by selling 3 Jan2010 options against the 300 shares owned in Fluor as follows:

12/15/09 Sell-to-Open (STO) 3 FLR Jan2010 $45.00s @ $1.10

The transactions history to date and the profit potential for the continuation covered calls position in FLR is as follows:
09/22/09 Bought 300 FLR @ $54.93
09/22/09 Sold 3 FLR Oct09 $55.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of FLR was $50.24 on expiration Friday.
10/19/09 Sell-to-Open (STO) 3 FLR Nov09 $55.00s @ $.95
The price of FLR was $51.57 today when this transaction was executed.
11/11/09 Buy-to-Close (BTC) 3 FLR Nov09 $55.00s @ $.05
11/11/09 Sell-to-Open (STO) 3 FLR Nov09 $45.00s @ $1.15
Note: Net Credit-Spread upon Roll-Down was $1.10 ($1.15 - $.05)
11/21/09 Nov09 Options Expired
The closing price of FLR was $44.19 on expiration Friday.
12/15/09 Sell-to-Open (STO) 3 FLR Jan2010 $45.00s @ $1.10
Note: The price of FLR was $43.10 today when this transaction was made.

Some possible overall performance results(including commissions) for the FLR transactions would be as follows:
Stock Purchase Cost: $16,487.95
= ($54.93*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,485.20
= (300*($1.95+$.95-$.05+$1.15+$1.10) - 4*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $43.10): -$3,557.95
= ($43.10-$54.93)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $45.00): -$2,987.95
= ($45.00-$54.93)*300 - $8.95 commissions


Total Net Profit(If stock price unchanged at $43.10): -$2,072.75
= (+$1,485.20 +$0.00 -$3,557.95)
Total Net Profit(If stock price exercised at $45.00): -$1,502.75
= (+$1,485.20 +$0.00 -$2,987.95)

Absolute Return if Stock Price Unchanged at $43.10: -12.6%
= -$2,072.75/$16,487.95
Annualized Return If Stock Price Unchanged (ARIU): -39.6%
= (-$2,072.75/$16,487.95)*(365/116 days)

Absolute Return if Exercised at $45.00: -9.1%
= -$1,502.75/$16,487.95
Annualized Return If Exercised (ARIE) -28.7%
= (-$1,502.75/$16,487.95)*(365/116 days)

Sunday, December 6, 2009

Overall Market Meter -- A Revised Covered Calls Investing Strategy

The "Overall Market Meter" on the right sidebar of this blog reflects the Covered Calls Advisor's current overall stock market outlook, which is currently "SLIGHTLY BULLISH." The meter also shows seven possible market sentiment indicators: Very Bullish, Bullish, Slightly Bullish, Neutral, Slightly Bearish, Bearish, and Very Bearish. To determine which indicator is most representative of this advisor's current outlook, a quantitative-based, multi-factor decision model is used. An explanation of the nine factors used to determine which one of the seven sentiment indicators is most representative of this advisor's "Current Overall Stock Market Outlook" will be the subject of another article on this blog in the near future.

The purpose of this article is to present the Covered Calls Advisor's preferred investing strategy for each of the seven possible indicators. First, let's consider this advisor's primary objective with covered calls investing, namely to "achieve market-beating returns." To accomplish this, an investing strategy should be designed to provide an opportunity to outperform the market for each of the seven market conditions. Fortunately, a well-defined, disciplined covered calls investing strategy provides an opportunity to achieve that goal by investing more aggressively in bull markets (by selling out-of-the-money covered calls), and more cautiously in bear markets (by selling in-the-money covered calls).

The chart below summarizes the Covered Calls Advisor's strategy for each of the seven market outlooks, and also provides a side-by-side comparison showing the original strategy and the revised strategy:










As described in a prior article (link), one of the great things about covered calls investing is that it provides us with three potential sources for profit: options income, dividend income, and capital appreciation. During recent months, this advisor has determined that a slightly more aggressive posture is desirable to become more fully exposed to the capital appreciation profit potential of covered calls. This is achieved through greater out-of-the-money exposure when initially establishing covered calls positions. Two revisions that enable this result are:
(1) The "New Strategy" shifts the moneyness of the strike prices toward a slightly greater out-of-the-money stance when establishing covered calls positions; and
(2) In bearish markets, by substituting some out-of-the-money positions on short (i.e. inverse) equities for what would normally have been in-the-money positions on long equities. For example, the chart demonstrates that when the "Overall Market Outlook" is "Bearish," the corresponding "New Strategy" will be to have 50% of the total portfolio value invested in covered calls that on-average are 1% In-the-Money using long underlying equity positions with the other 50% of the portfolio value invested in covered calls that on-average are 2% Out-of-the-Money using short (i.e. inverse) underlying equities.

If you have comments or questions related to the contents of this article, please feel free to submit them by clicking on the "comments" link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site. Your comments are always welcomed.

Regards and Godspeed,
Jeff

Thursday, December 3, 2009

Continuation Transaction -- Fuqi International Inc.

The Covered Calls Advisor Portfolio(CCAP) position in Fuqi International Inc.(FUQI) was out-of-the-money at Nov09 expiration. Today it was decided to retain the 200 shares of Fuqi International Inc.(FUQI) and to establish a Dec09 covered calls position as follows:

12/03/09 Sell-to-Open (STO) 2 FUQI Dec09 $22.50s @ $.35

The transactions history to date and the profit potential for the continuation covered calls position in FUQI is as follows:
10/16/09 Bought 200 FUQI @ $25.45
10/16/09 Sold 2 FUQI Nov09 $26.00 Calls @ $2.00
11/21/09 Nov09 Options Expired
12/03/09 Sell-to-Open (STO) 2 FUQI Dec09 $22.50s @ $.35
Note: The price of FUQI was $20.84 today when this transaction was made.

Some possible overall performance results(including commissions) for the FUQI transactions would be as follows:
Stock Purchase Cost: $5,098.95
= ($25.45*200+$8.95 commission)

Net Profit:
(a) Options Income: +$449.10
= (200*($2.00+$.35) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $20.84):
-$930.95 = ($20.84-$25.45)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $22.50): -$598.95
= ($22.50-$25.45)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.84): -$481.85
= (+$449.10 +$0.00 -$930.95)
Total Net Profit(If stock exercised at $22.50): -$149.85
= (+$449.10 +$0.00 -$598.95)

Absolute Return if Stock Price Unchanged at $20.84: -9.4%
= -$481.85/$5,098.95
Annualized Return If Unchanged (ARIU): -53.9%
= (-$481.85/$5,098.95)*(365/64 days)

Absolute Return if Stock Exercised at $22.50: -2.9%
= -$149.85/$5,098.95
Annualized Return If Exercised (ARIE): -16.8%
= (-$149.85/$5,098.95)*(365/64 days)

Continuation Transaction -- Multi-Fineline Electronix Inc.(MFLX)

The Covered Calls Advisor Portfolio(CCAP) position in Multi-Fineline Electronix Inc.(MFLX) was out-of-the-money at Nov09 expiration. Today it was decided to retain the 400 shares of Multi-Fineline Electronix Inc.(MFLX) and to establish a Feb2010 covered calls position as follows:

12/03/09 Sell-to-Open (STO) 4 MFLX Feb2010 $30.00s @ $.95

The transactions history to date and the profit potential for the continuation covered calls position in MFLX is as follows:
10/22/09 Bought 400 MFLX @ $27.50
10/22/09 Sold 4 MFLX Nov09 $30.00 Calls @ $.80
11/21/09 Nov09 Options Expired
12/03/09 Sell-to-Open (STO) 4 MFLX Feb2010 $30.00s @ $.95
Note: The price of MFLX was $26.29 today when this transaction was made.

Some possible overall performance results(including commissions) for this MFLX covered calls position would be as follows:
Stock Purchase Cost: $11,008.95
= ($27.50*400+$8.95 commission)

Net Profit:
(a) Options Income: +$676.10
= (400*($.80+$.95) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged from current $26.29): -$492.95
= ($26.29-$27.50)*400 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $30.00): +$991.05
= ($30.00-$27.50)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $26.29): +$183.15
= (+$676.10 +$0.00 -$492.95)
Total Net Profit(If stock exercised at $30.00): +$1,667.15
= (+$676.10 +$0.00 +$991.05)

Absolute Return if Stock Price Unchanged at $26.29: +1.7%
= +$183.15/$11,008.95
Annualized Return If Unchanged (ARIU): +5.0%
= (+$183.15/$11,008.95)*(365/121 days)

Absolute Return if Stock Exercised at $30.00: +15.1%
= +$1,667.15/$11,008.95
Annualized Return If Exercised (ARIE): +45.7%
= (+$1,299.10/$11,008.95)*(365/121 days)

Monday, November 30, 2009

Returns -- Through November 2009

This report presents the Covered Calls Advisor Portfolio (CCAP) performance results through November 2009.

1. Month of November 2009 Result:

The Covered Calls Advisor Portfolio increased by 2.41% for the month of November 2009. In comparison, the benchmark Russell 3000 index (IWV) increased by 5.78% for the month.


2. Year-to-Date Through November 2009 Results:

The 2009 Year-to-Date results are as follows:

CCAP Absolute Return (Jan 1st through November 30, 2009) = +34.20%
= ($268,041.81 - $199,733.10)/$199,733.10

Benchmark Russell 3000(IWV) Absolute Return (Jan 1st through November 30,2009) = +22.83%
= ($63.87 - $52.00)/$52.00

For the first eleven months of 2009, the table below shows that CCAP has outperformed the Russell 3000 benchmark by 11.37 percentage points (34.20% - 22.83%):

















3. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) was begun in September, 2007. The annualized returns achieved for 2007 and 2008 compared with the Russell 3000 benchmark results were as follows:








Note: This Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. A simple example demonstrates how it is calculated:
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100.

If you have any comments or questions, please feel free to submit them by clicking the 'comments' link below. If you prefer more confidential correspondence, my email address is listed at the top-right sidebar of this blog site.

Regards and Godspeed,

Jeff

Friday, November 27, 2009

Establish iShares MSCI China ETF Covered Calls

An additional covered calls position was established today in iShares MSCI China ETF (FXI) as follows:

Established iShares MSCI China ETF (FXI) Covered Calls for Dec09:
11/27/09 Bought 400 FXI @ $42.54
11/27/09 Sold 4 FXI Dec09 $44.00 Calls @ $1.13

China continues to rank #1 in this advisor's '2009 Country Value Rankings'.
Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 8.5% in 2009 and 9.0%+ in 2010. This compares with a projection of slightly negative growth this year in most of the world's major developed countries and perhaps 2.0% to 4.0% in 2010.
- Estimated current-year inflation of 0% to 1% in China.
- Price/Book ratio of 3.03 is a below-average valuation relative to many other countries (for example, the U.S. S&P 500 is currently at 3.37).

The FXI ETF was selected as the primary investment vehicle for achieving wide exposure to China's stock market performance. It consists of market-cap-weighted positions in the 25 largest companies in China, and although it is most heavily weighted in the financial, energy, and telecommunications sectors, it still provides a relatively good way to diversify across the Chinese economy. Since China remains as the Covered Calls Advisor's top investment idea, a major commitment of 17% of the total CCAP is now allocated to FXI covered calls. Moreover, as a direct reflection of this Advisor's current bullishness regarding China, a bullish covered calls position(3.4% out-of-the-money) was established. Normally, the Covered Calls Advisor establishes buy/write positions by buying the underlying equity and simultaneously selling the call options. However, because of the news regarding the possible delay in Dubai's debt payments and the associated substantial sell-off at the market's open today, it was decided to leg-in to this covered calls position by buying the 400 shares of FXI at $42.54 soon after the market opened. Ninety minutes later, when FXI had risen to $43.41 the Dec09 $44.00 options were sold at $1.13.

Some possible overall performance results(including commissions) for this FXI investment would be as follows:
Stock Purchase Cost: $17,024.95
= ($42.54*400+$8.95 commission)

Net Profit:
(a) Options Income: +$440.05
= (400*$1.13 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $42.54): -$8.95
= ($42.54-$42.54)*400 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $44.00): +$575.05
= ($44.00-$42.54)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $42.54): +$431.10
= (+$440.05 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $44.00): +$1,015.10
= (+$440.05 +$0.00 +$575.05)

Absolute Return if Stock Price Unchanged at $42.54: +2.5%
= +$431.10/$17,024.95
Annualized Return If Unchanged (ARIU): +42.0%
= (+$431.10/$17,024.95)*(365/22 days)

Absolute Return if Stock Exercised at $44.00: +6.0%
= +$1,015.10/$17,024.95
Annualized Return If Exercised (ARIE): +98.9%
= (+$1,015.10/$17,024.95)*(365/22 days)

The downside breakeven price for this out-of-the-money position is $41.41 ($42.54-$1.13), and as such provides a downside profit protection of up to 2.5% below the purchase price.

Wednesday, November 25, 2009

Establish Dresser-Rand Group Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Dresser-Rand Group Inc. (DRC) covered calls as follows:

Established Dresser-Rand Group Inc. (DRC) Covered Calls for Dec09:
11/25/09 Bought 300 DRC @ $29.30
11/25/09 Sold 3 DRC Dec09 $30.00 Calls @ $.60

Dresser-Rand Group Inc. manufactures steam and reciprocating compression turbines for the oil, gas, petrochemical and related industries. It also sells replacement and upgrade parts, as well as maintenance, installation, upgrade, overhaul, monitoring and repair services for both its own equipment and the equipment of other manufacturers. The company is the leading supplier of rotating equipment in the U.S. and is one of the top three suppliers worldwide, with manufacturing facilities in the U.S., France, Germany, Norway, India and Brazil.

The 'Buy Alerts' spreadsheet below shows that DRC has a 'Total Points' rating of 20.22 which exceeds the Covered Calls Advisor's desired threshold of 20.0 points.
























Note: For expanded view, left click on the spreadsheet above.


Some possible overall performance results(including commissions) for the DRC transactions would be as follows:
Stock Purchase Cost: $8,798.95
= ($29.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$168.80
= (300*$.60 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.30):
-$8.95 = ($29.30-$29.30)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $30.00): +$201.05
= ($30.00-$29.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.30): +$159.85
= (+$168.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $30.00): +$369.85
= (+$168.80 +$0.00 +$201.05)

Absolute Return if Unchanged at $29.30: +1.8%
= +$159.85/$8,798.95
Annualized Return If Unchanged (ARIU) +27.6%
= (+$159.85/$8,798.95)*(365/24 days)

Absolute Return if Exercised at $30.00: +4.2%
= +$369.85/$8,798.95
Annualized Return If Exercised (ARIE) +63.9%
= (+$369.85/$8,798.95)*(365/24 days)

Establish Rock-Tenn Co. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Rock-Tenn Co. (RKT) covered calls as follows:

Established Rock-Tenn Co. (RKT) Covered Calls for Dec09:
11/25/09 Bought 300 RKT @ $46.49
11/25/09 Sold 3 RKT Dec09 $50.00 Calls @ $.40

Rock-Tenn Company manufactures and sells packaging products, recycled paperboard, containerboard, bleached paperboard, and merchandising displays worldwide. The Consumer Packaging segment manufactures folding cartons for packaging applications; express mail envelopes for the overnight courier industry; coated recycled and bleached paperboard for manufacturers of folding cartons and other paperboard products; and market pulp. The Corrugated Packaging segment produces linerboard and corrugated medium, corrugated sheets and packaging, and preprinted linerboard for industrial and consumer products manufacturers and corrugated box manufacturers; converts corrugated sheets into corrugated products; and provides structural design and engineering services. The Merchandising Displays segment designs, manufactures, and pre-assembles temporary and permanent promotional point-of-purchase displays for consumer products companies; provides contract packing services, such as multi-product promotional packing and product manipulation; and produces lithographic laminated packaging. The Specialty Paperboard Products segment sells specialty recycled paperboard to manufacturers of solid fiber interior packaging, tubes and cores, and other paperboard products; produces gypsum paperboard liner; converts specialty paperboard into book cover and laminated paperboard products for use in furniture, automotive components, storage, and other industrial products; designs and manufactures fiber partitions, including solid fiber partitions for glass container manufacturers and producers of beer, food, wine, spirits, cosmetics, and pharmaceuticals, and die-cut paperboard components; and manufactures specialty agricultural packaging for certain fruit and vegetable markets and sheeted separation products. It also sells recycled paper to the manufacturers of paperboard, tissue, newsprint, roofing products, and insulation. The company was founded in 1936 and is headquartered in Norcross, Georgia.

Credit Suisse recently issued a very bullish analysis of containerboard stocks in which they highlighted the following catalysts: (1) containerboard pricing is poised to increase as the overall economy improves since the industry is already operating at 95% of capacity while current inventories are at 15-year lows; and (2) analysts' current average earnings estimates are low in comparison to likely results for the next several quarters.
More specifically for Rock-Tenn Co., it is in the midst of a dramatic improvement in free cash flow generation which it is using: (1) to pay shareholders (RKT has already announced a 50% increase in dividends to $.60 annually); and (2) to aggressively pay down the large debt from its 2008 acquisition of Southern Container. Despite its relatively high enterprise value resulting from its current high debt, its stock is now value-priced with a EBIT/EV (Earnings Before Interest and Taxes divided by Enterprise Value) of only 10.0. As such, this advisor believes that there is minimal downside risk for this stock -- so a moderately deep-out-of-the-money covered calls position was established in RKT.

Some possible overall performance results(including commissions) for the RKT transactions would be as follows:
Stock Purchase Cost: $13,955.95
= ($46.49*300+$8.95 commission)

Net Profit:
(a) Options Income: +$108.80
= (300*$.40 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $46.49):
-$8.95 = ($46.49-$46.49)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $50.00): +$1,044.05
= ($50.00-$46.49)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.49): +$99.85
= (+$108.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $50.00): +$1,152.85
= (+$108.80 +$0.00 +$1,044.05)

Absolute Return if Unchanged at $46.49: +0.7%
= +$99.85/$13,995.95
Annualized Return If Unchanged (ARIU) +10.8%
= (+$99.85/$13,995.95)*(365/24 days)

Absolute Return if Exercised at $50.00: +8.2%
= +$1,152.85/$13,995.95
Annualized Return If Exercised (ARIE) +125.3%
= (+$1,152.85/$13,995.95)*(365/24 days)

Establish Aeropostale Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Aeropostale Inc. (ARO) covered calls as follows:

Established Aeropostale Inc. (ARO) Covered Calls for Dec09:
11/25/09 Bought 300 ARO @ $30.56
11/25/09 Sold 3 ARO Dec09 $31.00 Calls @ $1.30

Aeropostale, Inc. operates as a mall-based specialty retailer offering proprietary branded, value-priced, active-oriented casual apparel and accessories. Their market is primarily teens between 14 and 17 years old. The company offers a collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, and outerwear; and various accessories including sunglasses, belts, socks, and hats under AEROPOSTALE, AERO, 87, and other related trademarks. It has a very strong competitor in Gap Inc. and to a lesser extent the higher-end teen mall retailers of American Eagle Outfitters and Abercrombie & Fitch. Nevertheless, Standard & Poor's calls Aeropostale "the best performing teen apparel retailer in the mall." Aeropostale operates a total of over 900 stores located almost exclusively in the U.S.

Aeropostale provides both good growth and value characteristics; this year it is continuing its perennial store-for-store sales growth and this has afforded management the opportunity to be selectively less aggressive with promotional markdowns. As a result, merchandise gross margins are likely to increase this year by more than 3.0 percentage points. This, in combination with management's continuing excellent expense controls are resulting in outstanding profitability (measured by return on invested capital) results. Yet at its current price, it is also a compelling value investment since its P/E ratio is below 10.0 based on its expected current year earnings of $3.20 per share. Third quarter earnings will be announced on Dec 2nd, but these results are well known since the company has already announced its sales results and has a tight window of $.90-$.91 for quarterly earnings. The more important announcement that day will be ARO's November sales results; this advisor believes this could be a positive catalyst for the stock price since this year will be compared with the relatively depressed sales levels during last year's credit crisis.

The 'Buy Alerts' spreadsheet below shows that ARO has a 'Total Points' rating of 21.49 which exceeds the Covered Calls Advisor's desired threshold of 20.0 points.





















Note: For expanded view, left click on the spreadsheet above.


Some possible overall performance results(including commissions) for the ARO transactions would be as follows:
Stock Purchase Cost: $9,176.95
= ($30.56*300+$8.95 commission)

Net Profit:
(a) Options Income: +$378.80
= (300*$1.30 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $30.56):
-$8.95 = ($30.56-$30.56)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $31.00): +$123.05
= ($31.00-$30.56)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $30.56): +$369.85
= (+$378.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $31.00): +$501.85
= (+$378.80 +$0.00 +$123.05)

Absolute Return if Unchanged at $30.56: +4.1%
= +$369.85/$9,176.95
Annualized Return If Unchanged (ARIU) +62.8%
= (+$132.85/$9,176.95)*(365/24 days)

Absolute Return if Exercised at $46.00: +5.5%
= +$501.85/$9,176.95
Annualized Return If Exercised (ARIE) +83.2%
= (+$144.85/$9,176.95)*(365/24 days)

Tuesday, November 24, 2009

Continuation Transactions to Re-Establish Covered Calls For Seven Holdings

Last Friday was expiration Friday for November 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the seventeen covered calls positions for November 2009: (1) Four were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Thirteen positions ended out-of-the-money. Yesterday it was decided to retain seven equities in the CCAP and to establish Dec09 covered calls positions. The seven equities are Accenture Ltd(ACN), Amgen Inc(AMGN), EMCOR Group(EME), ITT Corporation(ITT), Noble Corporation(NE), Sohu.com Inc(SOHU), and UnitedHealth Group Inc(UNH). The results so far for these seven holdings are as follows:

1. Accenture Ltd.(ACN) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in ACN is as follows:
08/24/09 Bought 300 ACN @ $35.51
08/24/09 Sold 3 ACN Sep09 $35.00 Calls @ $1.15
Roll-Out Transaction:
09/18/09 Buy-to-Close (BTC) 10 ACN Sep09 $35.00s @ $1.10
09/18/09 Sell-to-Open (STO) 10 ACN Oct09 $35.00s @ $1.90
Note: The price of ACN was $36.08 today when this debit-spread was transacted.
10/13/09 Buy-to-Close (BTC) 3 ACN Oct09 $35.00s @ $4.20
10/13/09 Sell-to-Open (STO) 3 ACN Nov09 $40.00s @ $.80
Note: The price of ACN was $39.18 today when this debit-spread was transacted.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 ACN Dec09 $40.00s @ $1.25

Stock Purchase Cost: $10,661.95
= ($35.51*300+$8.95 commission)

Net Profit:
(a) Options Income: -$104.80
= (300*($1.15-$1.10+$1.90-$4.20+$.80+$1.25) - 4*$11.20 commissions)
(b) Dividend Income: +$225.00 ($.75 * 300 shares)
(c) Capital Appreciation (If exercised at $40.00): +$1,338.05
= ($40.00-$35.51)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $40.00): +$1,458.25
= (-$104.80 +$225.00 +$1,338.05)

Absolute Return if Exercised at $40.00: +13.7%
= +$1,458.25/$10,661.95
Annualized Return If Exercised (ARIE): +42.7%
= (+$1,458.25/$10,661.95)*(365/117 days)

2. Amgen Inc.(AMGN) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in AMGN is as follows:
10/22/09 Bought 200 AMGN @ $56.40
10/22/09 Sold 2 AMGN Nov09 $57.50 Calls @ $1.20
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 AMGN Dec09 $57.50s @ $.93
Note: Price of AMGN was $56.15 when the Dec09 options were sold.

Stock Purchase Cost: $11,288.95
= ($56.40*200+$8.95 commission)

Net Profit:
(a) Options Income: +$405.10
= (200*($1.20+$.93) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $56.15): -$58.95
= ($56.15-$56.40)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $57.50): +$211.05
= ($57.50-$56.40)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $56.15): +$346.15
= (+$405.10 +$0.00 -$58.95)
Total Net Profit(If stock exercised at $57.50): +$616.15
= (+$405.10 +$0.00 +$211.05)

Absolute Return if Stock Price Unchanged at $56.15: +3.1%
= +$346.15/$11,288.95
Annualized Return If Unchanged (ARIU): +19.3%
= (+$346.15/$11,288.95)*(365/58 days)

Absolute Return if Stock Exercised at $57.50: +5.5%
= +$616.15/$11,288.95
Annualized Return If Exercised (ARIE): +34.3%
= (+$616.15/$11,288.95)*(365/58 days)

3. EMCOR Group(EME) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in EME is as follows:
10/20/09 Bought 400 EME @ $24.35
10/20/09 Sold 4 EME Nov09 $25.00 Calls @ $.85
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 4 EME Dec09 $25.00s @ $1.25
Note: Price of EME was $25.30 when the Dec09 options were sold.

Stock Purchase Cost: $9,748.95
= ($24.35*400+$8.95 commission)

Net Profit:
(a) Options Income: +$816.10
= (400*($.85+$1.25) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock exercised at $25.00): +$251.05
= ($25.00-$24.35)*400 - $8.95 commissions

Total Net Profit(If stock exercised at $25.00): +$1,067.15
= (+$816.10 +$0.00 +$251.05)

Absolute Return if Stock Exercised at $25.00: +10.9%
= +$1,067.10/$9,748.95
Annualized Return If Exercised (ARIE): +66.6%
= (+$1,067.10/$9,748.95)*(365/60 days)

4. ITT Corporation(ITT) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in ITT is as follows:
10/23/09 Bought 300 ITT @ $55.28
10/23/09 Sold 3 ITT Nov09 $55.00 Calls @ $2.60
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 ITT Jan10 $55.00s @ $.85
Note: Price of ITT was $51.55 when the Jan10 options were sold.

Stock Purchase Cost: $16,592.95
($55.28*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,012.60 (300*($2.60+$.85) - 2*$11.20 commissions)
(b) Dividend Income: +$63.90 ($.213 * 300 shares)
c) Capital Appreciation(If stock price unchanged at $51.55): -$1,127.95
= ($51.55-$55.28)*300 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $55.00): -$92.95
= ($55.00-$55.28)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $51.55): -$51.45
= (+$1,012.60 +$63.90 -$1,127.95)
Total Net Profit(If stock exercised at $55.00): +$983.55
= (+$1,012.60 +$63.90 -$92.95)

Absolute Return if Stock Price Unchanged at $51.55: -0.3%
= -$51.45/$16,592.95
Annualized Return If Unchanged (ARIU): -1.3%
= (-$51.45/$16,592.95)*(365/85 days)

Absolute Return if Stock Exercised at $55.00: +5.9%
= +$983.55/$16,592.95
Annualized Return If Exercised (ARIE): +25.5%
= (+$983.55/$16,592.95)*(365/85 days)

5. Noble Corporation(NE) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in NE is as follows:
09/02/09 Bought 300 NE @ $33.98
09/02/09 Sold 3 NE Sep09 $34.00 Calls @ $1.30
Roll-Up-and-Out Transaction:
09/17/09 Buy-to-Close (BTC) 3 NE Sep09 $34.00s @ $5.22
09/17/09 Sell-to-Open (STO) 3 NE Oct09 $36.00s @ $3.87
Note: The price of NE was $39.19 today when this debit-spread was transacted and the remaining time value in the Sep09 option was only $.03 [$5.22-($39.19-$34.00)].
Roll-Up-and-Out Transaction:
10/16/09 Buy-to-Close (BTC) 3 NE Oct09 $36.00s @ $5.60
10/16/09 Sell-to-Open (STO) 3 NE Nov09 $42.00s @ $1.75
Note: The price of NE was $41.56 today when this transaction occurred.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 NE Dec09 $42.00s @ $1.45
Note: Price of NE was $41.30 when the Dec09 options were sold.

The overall performance results(including commissions) for this NE covered calls position would be as follows:
Stock Purchase Cost: $10,202.95
($33.98*300+$8.95 commission)

Net Profit:
(a) Options Income: -$779.80
= (300*($1.30-$5.22+$3.87-$5.60+$1.75+$1.45) - 4*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $41.30): +$2,187.05
= ($41.30-$33.98)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $42.00): +$2,397.05
= ($42.00-$33.98)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $41.30): +$1,407.25
= (-$779.80 +$0.00 +$2,187.05)
Total Net Profit(If stock price exercised at $42.00): +$1,617.25
= (-$779.80 +$0.00 +$2,397.05)

Absolute Return if Stock Price Unchanged at $41.30: +13.8%
= +$1,407.25/$10,202.95
Annualized Return If Unchanged (ARIU) +46.6%
= (+$1,061.45/$10,202.95)*(365/108 days)

Absolute Return if Exercised at $42.00: +15.9%
= +$1,617.25/$10,202.95
Annualized Return If Exercised (ARIE) +53.6%
= (+$1,617.25/$10,202.95)*(365/108 days)

6. Sohu.com Inc.(SOHU) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in SOHU is as follows:
10/16/09 Bought 200 SOHU @ $64.05
10/16/09 Sold 2 SOHU Nov09 $65.00 Calls @ $3.50
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 2 SOHU Dec09 $60.00s @ $.75
Note: Price of SOHU was $55.10 when the Dec09 options were sold.

Some possible overall performance results(including commissions) for the SOHU transactions would be as follows:
Stock Purchase Cost: $12,818.95
= ($64.05*200+$8.95 commission)

Net Profit:
(a) Options Income: +$829.10
= (200*($3.50+$.75) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $55.10):
-$1,798.95 = ($55.10-$64.05)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $60.00): -$818.95
= ($60.00-$64.05)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $55.10): -$969.85
= (+$829.10 +$0.00 -$1,798.95)
Total Net Profit(If stock exercised at $60.00): +$10.15
= (+$829.10 +$0.00 -$818.95)

Absolute Return if Stock Price Unchanged at $55.10: -7.6%
= -$969.85/$12,818.95
Annualized Return If Unchanged (ARIU): -43.1%
= (-$969.85/$12,818.95)*(365/64 days)

Absolute Return if Stock Exercised at $60.00: +0.1%
= +$10.15/$12,818.95
Annualized Return If Exercised (ARIE): +0.5%
= (+$10.15/$12,818.95)*(365/64 days)

7. UnitedHealth Group Inc.(UNH) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in UNH is as follows:
09/23/09 Bought 400 UNH @ $27.05
09/23/09 Sold 4 UNH Oct09 $26.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of UNH was $24.45 on expiration Friday.
10/19/09 Sell-to-Open (STO) 4 UNH Nov09 $26.00s @ $.80
The price of UNH was $24.77 today when this transaction was executed.
Roll-Up Transaction:
11/09/09 Buy-to-Close (BTC) 4 UNH Nov09 $26.00s @ $3.15
11/09/09 Sell-to-Open (STO) 4 UNH Nov09 $29.00s @ $.92
Note: Net Debit-Spread upon Roll-Up was $2.23 ($3.15 - $.92) and the price of UNH was $29.02 when this debit-spread was transacted.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 4 UNH Dec09 $30.00s @ $.80
Note: Price of UNH was $29.34 when the Dec09 options were sold.

Some potential overall performance results(including commissions) for this UNH covered calls position would be as follows:
Stock Purchase Cost: $10,828.95
= ($27.05*400+$8.95 commission)

Net Profit:
(a) Options Income: +$480.20
= (400*($1.95+$.80-$3.15+$.92+$.80) - 4*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.34):
+$907.05 = ($29.34-$27.05)*400 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $30.00): +$1,171.05
= ($30.00-$27.05)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.34): +$1,387.25
= (+$480.20 +$0.00 +$907.05)
Total Net Profit(If stock exercised at $30.00): +$1,651.25
= (+$480.20 +$0.00 +$1,171.05)

Absolute Return if Stock Price Unchanged at $29.34: +12.8%
= +$1,387.25/$10,828.95
Annualized Return If Unchanged (ARIU): +53.7%
= (+$1,171.05/$10,828.95)*(365/87 days)

Absolute Return if Stock Exercised at $30.00: +15.2%
= +$1,651.25/$10,828.95
Annualized Return If Exercised (ARIE): +64.0%
= (+$1,651.25/$10,828.95)*(365/87 days)

Quidel Corporation (QDEL) -- Closed

Last Friday was expiration Friday for November 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the seventeen covered calls positions for October 2009, four were in-the-money at expiration and were therefore exercised and the stocks were called away, and thirteen positions ended out-of-the-money. Today, it was decided to sell the 300 shares of Quidel Corporation(QDEL) as follows:

1. Quidel Corporation(QDEL) -- Closed
The transactions history was as follows:
10/26/09 Bought 300 QDEL @ $15.10
10/26/09 Sold 3 QDEL Nov09 $15.00 Calls @ $.90
11/21/09 Nov09 Options Expired
11/23/09 Sold 300 QDEL @ $13.26

The overall performance results(including commissions) for the QDEL transactions were as follows:
Stock Purchase Cost: $4,538.95
= ($15.10*300+$8.95 commission)

Net Profit:
(a) Options Income: +$258.80
= (300*$.90 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$560.95
= ($13.26-$15.10)*300 - $8.95 commissions

Total Net Profit: -$302.15
= (+$258.80 +$0.00 -$560.95)

Absolute Return: -6.7%
= -$302.15/$4,538.95
Annualized Return: -86.8%
= (-$302.15/$4,538.95)*(365/28 days)

Saturday, November 21, 2009

November 2009 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of seventeen positions with November 2009 expirations, with the following results:
- Four positions (INTC, FXI, EWY, and AMTD) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for the four exercised positions were:

Intel Corporation (INTC): +21.3%
iShares MSCI China ETF (FXI): +43.2%
iShares MSCI South Korea ETF (EWY): +44.8%
TD Ameritrade Holding (AMTD): +52.3%

- Thirteen positions in the CCAP (ACN, AMGN, AHL, CHU, EME, FLR, FUQI, ITT, MFLX, NE, QDEL, SOHU, and UNH) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Dec09 covered call positions. The related transactions will be made this week and the actual transactions will be posted on this blog site on the same day they occur.

Detailed results for the four positions that were assigned (called away) upon Nov09 expiration are as follows:

1. Intel Corporation (INTC) -- Closed
The transactions history was as follows:
10/27/09 Bought 700 INTC @ $19.70
10/27/09 Sold 7 INTC Nov09 $19.00 Calls @ $.88
11/04/09 $98.00 ($.14 * 700 shares) Ex-dividend
11/21/09 Nov09 Options Exercised (700 shares of INTC called away at $19.00)
Note: Closing price of INTC was $19.24 on expiration Friday.

The overall performance results(including commissions) for the INTC transactions are as follows:
Stock Purchase Cost: $13,798.95
($19.70*700+$8.95 commission)

Net Profit:
(a) Options Income: +$601.80 (700*$.88 - $14.20 commissions)
(b) Dividend Income: +$98.00 ($.14 * 700 shares)
(c) Capital Appreciation: -$498.95
= ($19.70-$19.00)*700 - $8.95 commissions

Total Net Profit: +$200.85
= (+$601.80 +$98.00 -$498.95)

Absolute Return: +1.5%
= +$200.85/$13,798.95

Annualized Return: +21.3%
= (+$200.85/$13,798.95)*(365/25 days)


2. iShares MSCI China ETF (FXI) -- Closed
The transactions history was as follows:
10/16/09 Bought 500 FXI @ $43.29
10/16/09 Sold 5 FXI Nov09 $44.00 Calls @ $1.40
10/22/09 Bought 500 FXI @ $43.73
10/22/09 Sold 5 FXI Nov09 $44.00 Calls @ $1.40
11/21/09 Nov09 Options Exercised (1000 shares of FXI called away at $44.00)
Note: Closing price of FXI was $44.60 on expiration Friday.

The overall performance results(including commissions) for the FXI transactions are as follows:
Stock Purchase Cost: $43,527.90
($43.29*500+$43.73*500+$8.95*2 commissions)

Net Profit:
(a) Options Income: +$1,374.60
= [1000*$1.40) - $25.40 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$481.05
= [$44.00-($43.29+$43.73)/2)*1000 - $8.95 commissions

Total Net Profit: +$1,855.65
= (+$1,374.60 +$0.00 +$481.05)

Absolute Return: +4.3%
= +$1,855.65/$43,527.90
Annualized Return: +43.2%
= (+$1,855.65/$43,527.90)*(365/36 days)


3. iShares MSCI South Korea ETF (EWY) -- Closed
The transactions history was as follows:
10/16/09 Bought 400 EWY @ $45.82
10/16/09 Sold 4 EWY Nov09 $46.00 Calls @ $1.90
11/21/09 Nov09 Options Exercised (400 shares of EWY called away at $46.00)
Note: Closing price of EWY was $46.08 on expiration Friday.

The overall performance results(including commissions) for the FXI transactions are as follows:
Stock Purchase Cost: $18,336.95
($45.82*400 +$8.95 commissions)

Net Profit:
(a) Options Income: +$748.05
= [400*$1.90) - $11.95 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$63.05
= ($46.00-$45.82)*400 - $8.95 commissions

Total Net Profit: +$811.10
= (+$748.05 +$0.00 +$63.05)

Absolute Return: +4.4%
= +$811.10/$18,336.95
Annualized Return: +44.8%
= (+$811.10/$18,336.95)*(365/36 days)


4. TD Ameritrade Holding (AMTD) -- Closed
The transactions history was as follows:
10/22/09 Bought 400 AMTD @ $19.70
10/22/09 Sold 4 AMTD Nov09 $20.00 Calls @ $.60
11/21/09 Nov09 Options Exercised (400 shares of AMTD called away at $20.00)
Note: Closing price of AMTD was $20.91 on expiration Friday.

The overall performance results(including commissions) for the AMTD transactions are as follows:
Stock Purchase Cost: $7,888.95
= ($19.70*400+$8.95 commission)

Net Profit:
(a) Options Income: +$228.05
= (400*$.60 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation with Stock Exercised at $20.00: +$111.05
= ($20.00-$19.70)*400 - $8.95 commissions

Total Net Profit: +$339.10
= (+$228.05 +$0.00 +$111.05)

Absolute Return with Stock Exercised at $20.00: +4.3%
= +$339.10/$7,888.95
Annualized Return: +52.3%
= (+$339.10/$7,888.95)*(365/30 days)

Wednesday, November 18, 2009

Establish iShares MSCI China ETF Covered Calls


A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of the iShares MSCI China ETF (FXI) covered calls as follows:


Established iShares MSCI China ETF (FXI) Covered Calls for Dec09:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44

Some possible overall performance results(including commissions) for this FXI investment would be as follows:
Stock Purchase Cost: $27,332.95
= ($45.54*600+$8.95 commission)

Net Profit:
(a) Options Income: +$850.55
= (600*$1.44 - $13.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $45.54): -$8.95
= ($45.54-$45.54)*600 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $46.00): +$267.05
= ($46.00-$45.54)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.54): +$841.60
= (+$850.55 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $46.00): +$1,117.60
= (+$850.55 +$0.00 +$267.05)

Absolute Return if Stock Price Unchanged at $45.54: +3.1%
= +$841.60/$27,332.95
Annualized Return If Unchanged (ARIU): +36.3%
= (+$841.60/$27,332.95)*(365/31 days)

Absolute Return if Stock Exercised at $46.00: +4.1%
= +$1,117.60/$27,332.95
Annualized Return If Exercised (ARIE): +48.1%
= (+$1,117.60/$27,332.95)*(365/31 days)

The downside breakeven price for this out-of-the-money position is $44.10 ($45.54-$1.44), and as such provides a downside profit protection of up to 3.1% below the purchase price.

Establish United States Natural Gas Fund Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of the United States Natural Gas Fund (UNG) covered calls as follows:

Established the United States Natural Gas Fund (UNG) Covered Calls for Dec09:
11/18/09 Bought 300 UNG @ $8.96
11/18/09 Sold 3 UNG Dec09 $9.00 Calls @ $.51

UNG invests in near-month futures contracts and tracks the price of natural gas. The Covered Calls advisor believes that natural gas is a cost effective, clean, and abundant alternative fuel and will be an increasingly important resource in fulfilling future U.S. energy needs. At its current price near $4.30, this advisor further believes that Nat Gas now trades at the lower end of its likely price range for the next several months, and that now is a good time to initiate a covered calls position in this investment.

Some possible overall performance results(including commissions) for the UNG transactions would be as follows:
Stock Purchase Cost: $2,696.95
= ($8.96*300+$8.95 commission)

Net Profit:
(a) Options Income: +$141.80
= (300*$.51 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $8.96):
-$8.95 = ($8.96-$8.96)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $9.00): +$3.05
= ($9.00-$8.96)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $8.96): +$132.85
= (+$141.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $9.00): +$144.85
= (+$141.80 +$0.00 +$3.05)

Absolute Return if Unchanged at $8.96: +4.9%
= +$132.85/$2,696.95
Annualized Return If Unchanged (ARIU) +58.0%
= (+$132.85/$2,696.95)*(365/31 days)

Absolute Return if Exercised at $46.00: +5.4%
= +$144.85/$2,696.95
Annualized Return If Exercised (ARIE) +63.2%
= (+$144.85/$2,696.95)*(365/31 days)

The downside breakeven price for this out-of-the-money position is $8.45 ($8.96-$.51), and as such provides a downside profit protection of up to 4.9% below the purchase price.