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Monday, July 20, 2009

Establish Herbalife Ltd. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Herbalife Ltd (HLF) covered calls as follows:

Established Herbalife Ltd (HLF) Covered Calls for Aug09:
07/20/09 Bought 500 HLF @ $32.10
07/20/09 Sold 5 HLF Aug09 $30.00 Calls @ $3.32

Herbalife Ltd., a distributor network marketing company, sells weight management, nutritional supplement, energy, sports and fitness, and personal care products worldwide.

Herbalife obtains about 80% of its sales internationally. Its most attractive current growth opportunity is in China where they have been recently licensed to increase their presence from five to ten provinces.

This Advisor currently has a moderately cautious view towards consumer spending. Consequently, a conservative in-the-money position was established with up to 6.5% [($32.10-$30.00)/$32.10] downside protection available while still achieving the maximum potential annualized return-on-investment of 42.0% from this covered calls position.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for HLF. It scored well above the minimum threshold of 20.0 with a Total Points rating of 22.32.

Note: For expanded view, left click on the spreadsheet above.

Some potential results from this transaction are:
Absolute Return if Exercised at $30.00: +3.8%
= [($3.32-($32.10-$30.00)]/$32.10
Annualized Return If Exercised (ARIE): +42.0%
= [($3.32-($32.10-$30.00))]/($32.10)]*(365/33 days)

Downside Breakeven Price Point: $28.78
Downside Breakeven Protection: 10.3%

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