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Tuesday, August 25, 2009

Continuation Transaction -- Aspen Insurance Holdings Ltd.

Last Friday was expiration Friday for August 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the eight covered calls positions for August 2009, four were exercised and the stock was called away. The remaining four Aug09 positions expired out-of-the-money. Today it was decided to retain the 500 shares of Aspen Insurance Holdings Ltd.(AHL) and to establish a Sep09 covered calls position.

The transactions history to date and the profit potential for the continuation covered calls position in AHL is as follows:

Aspen Insurance Holdings Ltd.(AHL) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 500 shares owned in Aspen Insurance (AHL):
08/25/09 Sell-to-Open (STO) 5 AHL Sep09 $25.00s @ $.65

The transactions history to date is as follows:
07/21/09 Bought 500 AHL @ $24.95
07/21/09 Sold 5 AHL Aug09 $25.00 Calls @ $.90
08/22/09 Aug09 Options Expired
The price of AHL closed at $24.74 on expiration Friday.
08/25/09 Sell-to-Open (STO) 5 AHL Sep09 $25.00s @ $.65
The price of AHL was $24.70 today when this transaction was executed.


The overall performance results(including commissions) for this AHL covered calls position would be as follows:
Stock Purchase Cost: $12,483.95
($24.95*500+$8.95 commission)

Net Profit:
(a) Options Income: +$774.60
= (500*($.95+$.65) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $24.70):
-$133.95 = ($24.70-$24.95)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $25.00): +$16.05
= ($25.00-$24.95)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.70): +$640.65
= (+$774.60 +$0.00 -$133.95)
Total Net Profit(If stock price exercised at $25.00): +$790.65
= (+$774.60 +$0.00 +$16.05)

Absolute Return if Stock Price Unchanged at $24.70: +5.1%
= +$640.65/$12,483.95
Annualized Return If Stock Price Unchanged (ARIU): +31.2%
= (+$640.65/$12,483.95)*(365/60 days)

Absolute Return if Exercised at $25.00: +6.3%
= +$790.65/$12,483.95
Annualized Return If Exercised (ARIE) +38.5%
= (+$790.65/$12,483.95)*(365/60 days)

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