Tuesday, February 3, 2009

Roll Up -- j2 Global Communications Inc

The Covered Calls Advisor Portfolio (CCAP) covered calls position in j2 Global Communications Inc(JCOM) was rolled-up today (02/03/09) from the Feb09 $17.5s to the Feb09 $20s.

The spread transaction was executed as follows:
02/03/09 Buy-to-Close (BTC) 3 JCOM Feb09 $17.5s @ $2.76
02/03/09 Sell-to-Open (STO) 3 JCOM Feb09 $20s @ $1.06
Net Debit on Roll Up $1.70 ($2.76-$1.06)

As shown below, a newly developed 'Rolling Analyzer' worksheet has been developed to enable the analysis of any potential covered calls roll-up. The two key criteria analyzed are:
1. ARIU Increase -- 'Annualized Return if Stock Price Unchanged' Increase. That is, what is the difference between the ARIU for the remaining 18 days of the current position compared with the ARIU for the remaining 18 days for the proposed new position? In this case, and as shown on the worksheet below, the difference is +81.5%(118.2%-36.7%). This criterion is a 'Yes' if the difference is >+50.0% which is clearly the case in this instance.
2. The ‘net debit to strike price difference ratio’ is the second criterion presented below. In this case, the ‘net debit to strike price difference ratio’ was 68% [($2.76-$1.06)/($20-$17.5)]*100, which achieves the Covered Calls Advisor's desired threshold criteria; which is to roll up only when this ratio is <76%.

This roll-up spread was entered as a good-til-cancelled limit order with a spread of $1.70. This order was executed today when the price of JCOM stock was at $19.90.

The Transactions History to date for the JCOM covered calls is as follows:
01/23/09 Initial Stock Purchase Transaction -- Bought 300 JCOM @ $16.76
01/23/09 Inital Calls Sold Transaction -- Sold 3 JCOM Feb09 $17.50 Calls @ $1.00
Roll-Up Spread Transaction:
02/03/09 Buy-to-Close (BTC) 3 JCOM Feb09 $17.5s @ $2.76
02/03/09 Sell-to-Open (STO) 3 JCOM Feb09 $20s @ $1.06
Note: The price of JCOM was $19.90 today when this transaction was executed.

The overall performance results(including commissions) for the JCOM transactions through the Feb09 expiration would be as follows:

Stock Purchase Cost: $5,036.95
($16.76*300+$8.95 commission)

Net Profit:
(a) Options Income: -$242.90 (300*($1.00-$2.76+$1.06) - 2*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised): +$963.05 = ($20.00-$16.76)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $20.00): +$720.15
= (-$242.90 +$0.00 +$963.05)

Absolute Return If Exercised = +14.3%
Annualized Return If Exercised (ARIE) +179.9%
(+$720.15/$5,036.95)*(365/29 days)