Tuesday, April 21, 2009

Establish Endo Pharmaceutical Holdings Inc Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Endo Pharmaceutical Holdings Inc (ENDP) covered calls.

A summary of the transactions is as follows:
Established Endo Pharmaceutical Holdings Inc. Covered Calls for May09:
04/21/09 Bought 500 ENDP @ $17.61
04/21/09 Sold 5 ENDP May09 $17.50 Calls @ $.85

Endo Pharmaceuticals is involved in the research, development, sale, and marketing of branded and generic prescription pharmaceuticals for treating and managing pain primarily in the United States.
On the Covered Calls Advisor's 'Buy Alerts' spreadsheet, ENDP received a total of 9 points (out of a maximum of 9 points). It is very unusual for a potential investment to achieve a 9-out-of-9 result and the Covered Calls Advisor normally establishes a covered calls position in companies whenever this occurs. One caveat -- if you are thinking about establishing a covered calls position in ENDP, recognize that the options liquidity is very limited. Consequently, the bid/ask spread is wider than normal and the accompanying trading friction in establishing an attractively priced initial position as well as the feasibility of rolling the position at a later date are somewhat cumbersome.

Some potential results from this transaction are as follows:

Absolute Return if Exercised at $17.50: +4.2%
= [$.85-($17.61-$17.50)]/$17.61
Annualized Return if Exercised: +61.2%

Downside Breakeven Price Point: $16.76
Downside Breakeven Protection: 4.2%