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Thursday, May 14, 2009

Establish Hawaiian Holdings Inc Covered Calls


A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Hawaiian Holdings Inc(HA) covered calls as follows:

Established Hawaiian Holdings Inc(HA) Covered Calls for Jun09:
05/14/09 Bought 500 HA @ $4.7896
05/14/09 Sold 5 HA Jun09 $5.00 Calls @ $.70

Hawaiian Airlines offers daily service on transpacific routes between Hawaii and Los Angeles, Sacramento, San Diego, San Francisco, San Jose, Las Vegas, Phoenix, Portland, and Seattle, as well as daily service among the Hawaiian Islands, and additional service to Australia, American Samoa, and Tahiti. Just this week they announced an agreement with Korean Airlines for service between Hawaii and Korea and including flights from Korea to Japan, Malaysia, and Thailand. The Covered Calls Advisor views this agreement with Korean Air as the first step in an ongoing expansion to Asia/Pacific destinations. This is an excellent foundation around which future growth should be achieved.

Below is this Advisor's 'Buy Alerts' spreadsheet for HA. It has a very high 'Total Points', rating very high in every category (except for its relatively high debt).
I hope the spreadsheet is large enough for you to see the details for each rating factor. I can only attribute this visual problem to my limited computer skills. Also, the returns below show the extremely attractive potential for this covered calls position. I was fortunate to purchase the stock as it was drifting upwards. Then I placed a limit order to sell the calls at the 'ask' price and was fortunate that the stock continued to move slightly higher to a point where the options were transacted a few minutes later. I agree that "sometimes it is better to be lucky than good." If you are a careful reader of this blog, you might recall that this investment is contrary to a comment made just one week ago on this blog, that "going forward, this advisor will be avoiding taking covered calls positions in any equity that is priced below $10." Well, to that I'll simply say that the adage must be true that "old habits die hard" -- Note to self: I need to resolve this conflict in my process!


Some potential results from this Hawaiian Holdings covered calls transaction are as follows:

Absolute Return if Unchanged at $4.7896: +14.6%
= $.70/$4.7896
Annualized Return If Unchanged (ARIU): +143.2%
= ($.70/$4.7896)*(365/37 days)

Absolute Return if Exercised at $5.00: +19.0%
=[$.70+($5.00-$4.7896)]/$4.7896
Annualized Return If Exercised (ARIE): +187.5%

Downside Breakeven Price Point: $4.0896
Downside Breakeven Protection: 14.6%

8 comments:

  1. Any particular reason you chose Hawaiian Holdings as opposed to a different airline? Was it mainly the recent Korean deal?

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  2. HA is the only airline that is rated 'Buy' by both stock advisory services I prefer. But even then, normally I would not choose an airline because of their high capital costs and hefty expense exposure to oil prices. But in this case, both the growth potential and the exceedingly attractive valuations (see 'Buy Alerts' spreadsheet) were enough to overcome my natural reluctance to invest in an airline.
    Jeff

    ReplyDelete
  3. When you typically establish a covered call position, do you buy the stock, and sell the call in a buy-write order at the same time, or separately, and not necessarily at the same time in one day.

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  4. Being honest, I'd say it's about 50/50. Since we've been in a bullish market the past couple months, then I tend to leg in to the position and try to catch it in an updraft. Conversely, in bearish times I tend to use the simultaneous buy-write.

    Jeff

    ReplyDelete
  5. I'm new with covered calls earlier in the month on Tivo -- it worked out nicely as Tivo ended up flat, but ended at exactly the strike price. Jeff, in your experience does your stock usually get called away or no?

    (strike price was 7.50 closed friday at 7.50).

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  6. Nice investment with Tivo -- At $7.50 it does not get called away; At $7.51 it most likely would have. Congratulations.

    ReplyDelete
  7. I also happened to invest in Tivo with a $7.50 covered call for May, I think sometimes looking for a stock that has been trading in a relatively narrow range for a while, can offer a very interesting covered call play. Jeff, Id be interested to get your thoughts on some of my covered call plays I show on coveredcallsinvestor.blogspot.com. Thanks!

    ReplyDelete
  8. Tivo actually has been a fantastic covered calls position -- you may not want to get in this month b/c they do release earnings. although to be honest tivo is one of the few companies that doesn't really react much to earnings -- more to other things discussed in the call (unless it's truly awful)

    ReplyDelete