Monday, August 24, 2009

Establish Diana Shipping Inc. Covered Calls


A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Diana Shipping Inc (DSX) covered calls as follows:

Established Diana Shipping Inc.(DSX) Covered Calls for Sep09:
08/24/09 Bought 300 DSX @ $13.52
08/24/09 Sold 3 DSX Sep09 $12.50 Calls @ $1.40

Diana Shipping(DSX) is a dry bulk cargo freight company with 19 carriers. The company is focused on transporting iron ore, coal, grain, and other bulk materials along worldwide shipping routes. DSX will be a beneficiary from any worldwide economic recovery. This Advisor believes a global recovery is now beginning but that the pace of improvement will be slow and also shallow. Consequently, a conservative in-the-money position was established with up to 7.5% [($13.52-$12.50)/$13.52] downside protection available while still achieving the maximum potential annualized return-on-investment of 39.5% from this covered calls position.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for DSX. It scored above the minimum threshold of 20.0 with a Total Points rating of 21.58.






















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

Some potential results from this transaction are:
Absolute Return if Exercised at $12.50: +2.8%
= [($1.40-($13.52-$12.50)]/$13.52
Annualized Return If Exercised (ARIE): +39.5%
= {[($1.40-($13.52-$12.50)]/$13.52}*(365/26 days)

Downside Breakeven Price Point: $12.12
Downside Breakeven Protection: 10.4%

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