Monday, August 24, 2009

Continuation Transaction -- Sohu.com

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 sell Synaptics(SYNA) and to retain Sohu.com(SOHU) and to establish a Sep09 covered calls position. No decision has been made yet regarding the other two holdings which are Aspen Insurance Holdings Ltd (AHL) and the U.S. Natural Gas Fund ETF (UNG).

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

Sohu.com Inc (SOHU) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 400 shares owned in Sohu.com Inc (SOHU):
08/24/09 Sell-to-Open (STO) 4 SOHU Sep09 $65s @ $2.90

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.
06/03/09 Buy-to-Close (BTC) 4 SOHU Jun09 $60s @ $6.15
06/03/09 Sell-to-Open (STO) 4 SOHU Jun09 $65s @ $2.89
Note: The price of SOHU was $65.02 today when the debit-spread was transacted.
06/20/09 Jun09 Options Expired
06/24/09 Sell-to-Open (STO) 4 SOHU Jul09 $65s @ $2.85
Note: The price of SOHU was $64.60 today when the debit-spread was transacted.
07/18/09 Jul09 Options Expired
The price of SOHU closed at $62.00 on expiration Friday.
07/20/09 Sell-to-Open (STO) 4 SOHU Aug09 $65.00s @ $3.40
The price of SOHU was $63.80 today when this transaction was executed.
08/22/09 Aug09 Options Expired
The price of SOHU closed at $64.09 on expiration Friday.
08/24/09 Sell-to-Open (STO) 4 SOHU Sep09 $65.00s @ $2.90
The price of SOHU was $64.90 today when this transaction was executed.

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

Net Profit:
(a) Options Income: +$2,152.30
= (400*($3.00-$5.84+$2.51-$6.15+$2.89+$2.85+$3.40+$2.90) - 6*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $64.90): +$4,151.05
= ($64.90-$54.50)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $65.00): +$4,191.05
= ($65.00-$54.50)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $64.90): +$6,303.35
= (+$2,152.30 +$0.00 +$4,151.05)
Total Net Profit(If stock price exercised at $65.00): +$6,343.35
= (+$2,152.30 +$0.00 +$4,191.05)

Absolute Return if Stock Price Unchanged at $64.90: +28.9%
= +$6,303.35/$21,808.95
Annualized Return If Stock Price Unchanged (ARIU): +85.8%
= (+$6,303.35/$21,808.95)*(365/123 days)

Absolute Return if Exercised at $65.00: +29.1%
= +$6,343.35/$21,808.95
Annualized Return If Exercised (ARIE) +86.3%
= (+$6,343.35/$21,808.95)*(365/123 days)

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