Thursday, February 26, 2009

Bank of America Corp -- Continuation Transaction

The following transaction was made to establish a covered calls position against the 500 shares owned in Bank of America Corp (BAC):
02/26/09 Sell-to-Open (STO) 5 BAC Mar09 $6s @ $.70

The transactions history to date is as follows:
01/15/09 Bought 500 BAC @ $7.929
01/15/09 Sold 5 BAC Feb09 $7.50 Calls @ $2.08
02/21/09 Feb09 Options Expired
02/26/09 Sell-to-Open (STO) 5 BAC Mar09 $6s @ $.70
Note: The price of BAC stock was $5.68 today when the calls were sold.

The overall performance results(including commissions) for the BAC transactions are as follows:
Stock Purchase Cost: $3,973.45
($7.929*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,364.60 (500*($2.08+$.70) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged): -$1,133.45
= ($5.68-$7.929)*500 - $8.95 commissions
(d) Capital Appreciation (If exercised): -$973.45
= ($6.00-$7.929)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $5.68): +$231.15
= (+$1,364.60 +$0.00 -$1,133.45)
Total Net Profit(If stock price exercised at $6.00): +$391.15
= (+$1,364.60 +$0.00 -$973.45)

Absolute Return if Unchanged: +5.8%
=+$231.15/$3,973.45
Annualized Return If Unchanged (ARIU): +32.7%
=(+$231.15/$3,973.45)*(365/65 days)

Absolute Return if Exercised: +9.8%
=+$391.15/$3,973.45
Annualized Return If Exercised (ARIE) +55.3%
=(+$391.15/$3,973.45)*(365/65 days)

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