Friday, May 29, 2009

Roll-Up -- Sohu.com Inc

A Covered Calls Advisor Portfolio (CCAP) covered calls position in Sohu.com Inc(SOHU) was rolled-up today (05/29/09) from the Jun09 $55s to the Jun09 $60s. The debit-spread transaction was executed as follows:
05/29/09 Buy-to-Close (BTC) 4 SOHU Jun09 $55s @ $5.84
05/29/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $2.51
Net Debit-Spread upon Roll-Up was $3.33 ($5.84 - $2.51)
Note: The price of SOHU was $59.85 today when the debit-spread was transacted, so the remaining time-value was $.99 [$5.84-($59.85-$55.00)] when this transaction was executed.

The transactions history to date is as follows:
05/19/09 Initial Stock Purchase Transaction -- Bought 400 SOHU @ $54.50
05/19/09 Inital Calls Sold Transaction -- Sold 4 SOHU Jun09 $55.00 Calls @ $3.00
A debit-spread transaction was executed as follows:
05/29/09 Buy-to-Close (BTC) 4 SOHU Jun09 $55s @ $5.84
05/29/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $2.51
Note: The price of SOHU was $59.85 today when the debit-spread was transacted.

The overall performance results(including commissions) for the SOHU transactions would be as follows:
Stock Purchase Cost: $21,808.95
($54.50*400+$8.95 commission)

Net Profit:
(a) Options Income: -$155.90
= (400*($3.00-$5.84+$2.51) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $59.85): +$2,131.05
= ($59.85-$54.50)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $60.00): +$2,191.05
= ($60.00-$54.50)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $59.85): +$1,975.15
= (-$155.90 +$0.00 +$2,131.05)
Total Net Profit(If stock price exercised at $60.00): +$2,035.15
= (-$155.90 +$0.00 +$2,191.05)

Absolute Return if Unchanged at $59.85: +9.1%
= +$1,975.15/$21,808.95
Annualized Return If Unchanged (ARIU) +103.3%
= (+$1,975.15/$21,808.95)*(365/32 days)

Absolute Return if Exercised at $60.00: +9.3%
= +$2,035.15/$21,808.95
Annualized Return If Exercised (ARIE) +106.4%
= (+$2,035.15/$21,808.95)*(365/32 days)

It should also be noted that this maximum potential annualized return (after the roll-up) of 106.4% is higher than the 73.3% potential annualized return that would have been achieved if no roll-up transaction had been executed today and if the original position had been allowed to be exercised at the original $55.00 strike price upon Jun09 expiration.

3 comments:

  1. question about rollups...

    i recently bought CLF at 23.12 and sold in the money covered calls Jun 20s for 3.90 now -- a few days later it's sitting at 27+ at this point i have 2 options roll up to 23 for appx 2.60 or sit tight and just make the additional 0.15-0.20 premium left on the 20 what do u suggest...

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  2. Suggest you watch stock price movement for first couple of days this week. If current price level persists above $27, then roll-up perhaps to Jun09 $25 strike.

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  3. jeff, seems that thse days every time you roll up SOhu -- it's time to roll it up again 2 days later...

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