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Wednesday, February 25, 2009

Hewlett-Packard -- Continuation Transactions

Today, 300 shares of Hewlett-Packard Company(HPQ) were purchased which added to the 300 shares of HPQ already owned in the Covered Calls Advisor Portfolio(CCAP). Covered calls positions were then established against the 600 shares of HPQ by selling 6 Mar09 $32.50 calls. Today's transactions were as follows:
02/25/09 Bought 300 HPQ @ $29.79
02/25/09 Sell-to-Open (STO) 6 HPQ Mar09 $32.50s @ $.55

The transactions history to date is as follows:
01/20/09 Bought 300 HPQ @ $33.89
01/20/09 Sold 3 HPQ Feb09 $37.50 Calls @ $.80
02/21/09 Feb09 Options Expired
02/25/09 Bought 300 HPQ @ $29.79
02/25/09 Sell-to-Open (STO) 6 HPQ Mar09 $32.50s @ $.55

A decision was made today to double the number of shares held by the CCAP in HPQ from 300 to 600 shares. Hewlett-Packard shares were hit hard as a result of its recent disappointing earnings -- too hard in this advisor's opinion. The fundamentals of this high-quality company remain strong and HPQ continues to rate highly with 8 of 9 metrics being positive on the CCAP 'Buy Alerts' worksheet. It is also believed that the ability of HPQ to successfully integrate its recent EDS acquisition into the services segment of its business model remains underappreciated by investors. In addition, the stock seems attractively valued based on the current price/sales ratio of 0.6, which is a historically low level.

The overall performance results(including commissions) for the HPQ transactions are as follows:
Stock Purchase Cost: $19,121.90
($33.89*300+$29.79*300+2*$8.95 commission)

Net Profit:
(a) Options Income: +$545.35 = (300*$.80 + 600*$.55 - $24.65 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged): -$1,238.95
= [$29.79-$31.84(avg cost basis)]*600 - $8.95 commissions
(d) Capital Appreciation (If exercised): +$387.05
= [$32.50-$31.84(avg cost basis)]*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.79): -$693.60
= (+$545.35 +$0.00 -$1,238.95)
Total Net Profit(If stock price exercised at $32.50): +$932.40
= (+$545.35 +$0.00 +$387.05)

Absolute Return if Unchanged: -3.6%
=-$693.60/$19,121.90
Annualized Return If Unchanged (ARIU): -31.5%
=(-$693.60/$19,121.90)*(365/(60+24)/2 days)

Absolute Return if Exercised: +4.9%
=+$932.40/$19,121.90
Annualized Return If Exercised (ARIE) +42.4%
=(+$932.40/$19,121.90)*(365/(60+24)/2 days)

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