Thursday, February 26, 2009

Home Depot Inc -- Continuation Transaction

The following transaction was made to establish a covered calls position against the 300 shares owned in Home Depot Inc (HD):
02/26/09 Sell-to-Open (STO) 3 HD Apr09 $22.50s @ $.65
Normally, the near-month (Mar09) option would be sold, but the premium on the Mar09 was less than the minimum threshold of the Covered Calls Advisor of $.40, so the Apr09 expiration was selected.

The transactions history to date is as follows:
01/27/09 Bought 300 HD @ $21.95
01/27/09 Sold 3 HD Feb09 $22.50 Calls @ $.89
02/21/09 Feb09 Options Expired
02/26/09 Sell-to-Open (STO) 3 HD Apr09 $22.50s @ $.65
Note: The price of HD stock was $20.69 today when the calls were sold.
03/10/09 $67.50 Ex-dividend ($.225*300 shares)

The overall performance results(including commissions) for the HD transactions are as follows:
Stock Purchase Cost: $6,593.95
($21.95*300+$8.95 commission)

Net Profit:
(a) Options Income: +$439.60 (300*($.89+$.65) - 2*$11.20 commissions)
(b) Dividend Income: +$67.50
(c) Capital Appreciation (If stock price unchanged): -$386.95
= ($20.69-$21.95)*300 - $8.95 commissions
(d) Capital Appreciation (If exercised): +$156.05
= ($22.50-$21.95)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.69): +$120.15
= (+$439.60 +$67.50 -$386.95)
Total Net Profit(If stock price exercised at $22.50): +$663.15
= (+$439.60 +$67.50 +$156.05)

Absolute Return if Unchanged: +1.8%
=+$120.15/$6,593.95
Annualized Return If Unchanged (ARIU): +12.5%
=(+$120.15/$6,593.95)*(365/53 days)

Absolute Return if Exercised: +10.1%
=+$663.15/$6,593.95
Annualized Return If Exercised (ARIE) +69.3%
=(+$663.15/$6,593.95)*(365/53 days)

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