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Monday, May 18, 2009

Continuation Transactions -- Amgen, China Mobile, and Sohu.com

This past Friday was expiration Friday for May 2009. In this Covered Calls Advisor blog's most recent post, it was noted that of the twelve covered calls positions for May 2009, eight were exercised and the stock was called away. The remaining four May09 positions expired out-of-the-money. Today it was decided to retain the stocks of three of these four companies (AMGN,CHL, and SOHU) and to establish Jun09 covered calls for each one. Further analysis will be conducted regarding the fundamentals for the other company retained after last Friday's expiration, Endo Pharmaceuticals (ENDP) and the decision will be posted on this blog when it occurs. The transactions history to date and the profit potential for each of these companies is detailed below.

1. Amgen Inc (AMGN) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 300 shares owned in Amgen Inc (AMGN):
05/18/09 Sell-to-Open (STO) 3 AMGN Jun09 $50s @ $1.12

The Transactions History to date is as follows:
03/23/09 Initial Stock Purchase Transaction -- Bought 300 AMGN @ $48.95
03/23/09 Inital Calls Sold Transaction -- Sold 3 AMGN Apr09 $50.00 Calls @ $1.70
04/18/09 Apr09 Options Expired
04/24/09 Continuation Transaction -- Sell-to-Open (STO) 3 AMGN May09 $50s @ $1.05
Note: The price of AMGN was $48.95 today when the call options were sold.
05/16/09 May09 Options Expired
Note: The closing price of AMGN was $48.16 on expiration Friday.
05/18/09 Sell-to-Open (STO) 3 AMGN Jun09 $50s @ $1.12
Note: The price of AMGN was $48.30 today when the call options were sold.

The overall performance results(including commissions) for the AMGN transactions would be as follows:
Stock Purchase Cost: $14,693.95
($48.95*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,127.40 [300*($1.70+$1.05+$1.12) - 3*$11.20 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $48.30): -$203.95
= ($48.30-$48.95)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $50.00): +$501.05
= ($50.00-$48.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $48.30): +$923.45
= (+$1,127.40 +$0.00 -$203.95)
Total Net Profit(If stock price exercised at $50.00): +$1,628.45
= (+$1,127.40 +$0.00 +$501.05)

Absolute Return if Stock Price Unchanged at $48.30: +6.3%
= +$923.45/$14,693.95
Annualized Return If Stock Price Unchanged (ARIU) +25.8%
= (+$1,127.40/$14,693.95)*(365/89 days)

Absolute Return if Exercised at $50.00: +11.1%
= +$1,628.45/$14,693.95
Annualized Return If Exercised (ARIE) +45.5%
= (+$1,628.45/$14,693.95)*(365/89 days)


2. China Mobile LTD ADR (CHL) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 400 shares owned in China Mobile LTD ADR (CHL):
05/18/09 Sell-to-Open (STO) 4 CHL Jun09 $50s @ $1.25

The transactions history to date is as follows:
04/20/09 Initial Stock Purchase Transaction -- Bought 400 CHL @ $45.65
04/20/09 Inital Calls Sold Transaction -- Sold 4 CHL May09 $45.00 Calls @ $2.40
A debit-spread transaction was executed as follows:
05/06/09 Buy-to-Close (BTC) 4 CHL May09 $45s @ $3.70
05/06/09 Sell-to-Open (STO) 4 CHL May09 $50s @ $.65
Note: The price of CHL was $48.51 today when the debit-spread was transacted.
05/11/09 Ex-Div of $362.32($.9058 * 400 shares)
05/16/09 May09 Options Expired
Note: The closing price of CHL was $46.06 on expiration Friday.
05/18/09 Sell-to-Open (STO) 4 CHL Jun09 $50s @ $1.25
Note: The price of CHL was $47.30 today when the call options were sold.

The overall performance results(including commissions) for the CHL transactions would be as follows:
Stock Purchase Cost: $18,268.95
($45.65*400+$8.95 commission)

Net Profit:
(a) Options Income: +$204.15
= (400*($2.40-$3.70+$.65+$1.25) - 3*$11.95 commissions)
(b) Dividend Income: +$362.32 ($.9058 * 400 shares)
(c) Capital Appreciation (If stock price unchanged at $47.30): +$651.05
= ($47.30-$45.65)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $50.00): +$1,731.05
= ($50.00-$45.65)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $47.30): +$1,217.52
= (+$204.15 +$362.32 +$651.05)
Total Net Profit(If stock price exercised at $50.00): +$2,297.52
= (+$204.15 +$362.32 +$1,731.05)

Absolute Return if Stock Price Unchanged at $47.30: +6.7%
= +$1,217.52/$18,268.95
Annualized Return If Stock Price Unchanged (ARIU) +39.9%
= (+$1,213.47/$18,268.95)*(365/61 days)

Absolute Return if Exercised at $50.00: +12.6%
= +$2,297.52/$18,268.95
Annualized Return If Exercised (ARIE): +75.3%
= (+$2,297.52/$18,268.95)*(365/61 days)


3. Sohu.com Inc (SOHU) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 400 shares owned in Sohu.com Inc (SOHU):
05/18/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $1.25

The transactions history to date is as follows:
02/24/09 Bought 400 SOHU @ $44.617
02/24/09 Sold 4 SOHU Mar09 $45.00 Calls @ $3.20
03/21/09 Mar09 Options Expired
03/23/09 Continuation Transaction -- Sell-to-Open (STO) 4 SOHU Apr $45s @ $1.45
Note: The price of SOHU was $40.10 today when the call options were sold.
04/13/09 Buy-to-Close (BTC) 4 SOHU Apr09 $45.00s @ $5.20
04/13/09 Sell-to-Open (STO) 4 SOHU May09 $50.00s @ $4.30
Net Debit-Spread upon Roll-Up-and-Forward was $.90 ($5.20 - $4.30)
Note: The price of SOHU was $49.90 today when the call options were sold.
05/04/09 Buy-to-Close (BTC) 4 SOHU May09 $50s @ $8.95
05/04/09 Sell-to-Open (STO) 4 SOHU May09 $60s @ $1.95
Net Debit-Spread upon Roll-Up was $7.00 ($8.95 - $1.95)
Note: The price of SOHU was $58.65 today when the call options were sold.
05/16/09 May09 Options Expired
Note: The closing price of SOHU was $52.58 on expiration Friday.
05/18/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $1.25
Note: The price of CHL was $53.98 today when the call options were sold.

The overall performance results(including commissions) for the SOHU transactions are as follows:
Stock Purchase Cost: $17,855.75
($44.617*400+$8.95 commission)

Net Profit:
(a) Options Income: -$852.25 (400*($3.20+$1.45-$5.20+$4.30-$8.95+$1.95+$1.25) - 5*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $53.98): +$3,736.25
= ($53.98-$44.617)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $60.00): +$6,144.25
= ($60.00-$44.617)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $53.98): +$2,884.00
= (-$852.25 +$0.00 +$3,736.25)
Total Net Profit(If stock price exercised at $60.00): +$5,292.00
= (-$852.25 +$0.00 +$6,144.25)

Absolute Return if Stock Price Unchanged at $53.98: +16.2%
= +$2,884.00/$17,855.75
Annualized Return If Stock Price Unchanged (ARIU): +50.8%
= (+$4,262.45/$17,855.75)*(365/116 days)

Absolute Return if Exercised at $60.00: +29.6%
= +$5,292.00/$17,855.75
Annualized Return If Exercised (ARIE) +93.3%
= (+$5,292.00/$17,855.75)*(365/116 days)

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