Wednesday, May 20, 2009

Continuation Transaction -- Endo Pharmaceutical Holdings Inc

This past Friday was expiration Friday for May 2009. Since Endo Pharmaceuticals is buy-rated by both stock advisory services used by the Covered Calls Advisor and it continues to rate favorably on the 'buy alerts' valuation metrics, it was decided to keep ENDP and to establish a July 2009 covered calls position against the 500 shares currently owned as follows:
05/20/09 Sell-to-Open (STO) 5 ENDP Jul09 $17.50s @ $.55
Normally, near-month calls are sold, which in this instance would be the Jun09s. However, this advisor prefers to receive a minimum of $.40 per option sold. The available premium for the Jun09 $17.5s was only $.25, so the decision was made to sell the Jul09 $17.5s for $.55.

The Transactions History to date is as follows:
04/21/09 Bought 500 ENDP @ $17.61
04/21/09 Sold 5 ENDP May09 $17.50 Calls @ $.85
05/16/09 May09 Options Expired
Note: The closing price of ENDP was $15.83 on expiration Friday.
05/20/09 Sell-to-Open (STO) 5 ENDP Jul09 $17.50 @ $.55
Note: The price of ENDP was $16.72 today when the call options were sold.

The overall performance results(including commissions) for the ENDP transactions would be as follows:
Stock Purchase Cost: $8,813.95
($17.61*500+$8.95 commission)

Net Profit:
(a) Options Income: +$674.60 [500*($.85+$.55) - 2*$12.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $16.72): -$453.95
= ($16.72-$17.61)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $17.50): -$63.95
= ($17.50-$17.61)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $16.72): +$220.65
= (+$674.60 +$0.00 -$453.95)
Total Net Profit(If stock price exercised at $17.50): +$610.65
= (+$674.60 +$0.00 -$63.95)

Absolute Return if Stock Price Unchanged at $16.72: +2.5%
= +$220.65/$8,813.95
Annualized Return If Stock Price Unchanged (ARIU) +10.4%
= (+$220.65/$8,813.95)*(365/88 days)

Absolute Return if Exercised at $17.50: +7.7%
= +$674.60/$14,693.95
Annualized Return If Exercised (ARIE) +31.7%
= (+$674.60/$14,693.95)*(365/88 days)

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