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Tuesday, May 19, 2009

Establish Inc Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Inc (SOHU) covered calls. This investment doubles the CCAP position in SOHU from 400 to 800 shares.

Sohu is an internet services provider to consumers and businesses in China. Their services include brand advertising, sponsored search, online games, and wireless services. It ranks very high on the Covered Calls Advisor 'Buy Alerts' worksheet with positive ratings in 8 of the 9 metrics. Most compelling is the relatively modest current P/E ratio of 11.7 for a company with 20%+ expected annual growth rate. In addition, the balance sheet is very strong with high cash levels and no debt.

A summary of the transactions is as follows:
Established Inc Covered Calls for Jun09:
05/19/09 Bought 400 SOHU @ $54.50
05/19/09 Sold 4 SOHU Jun09 $55.00 Calls @ $3.00

Absolute Return if Stock Price Unchanged at $54.50: +5.5%
Annualized Return If Unchanged (ARIU): +62.7%

Absolute Return if Exercised at $55.00: +6.4%
Annualized Return If Exercised (ARIE): +73.3%

Downside Breakeven Price Point: $51.50
Downside Breakeven Protection: 5.5%

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