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Thursday, September 24, 2009

Continuation Transaction -- ProShares Short S&P 500 ETF

Last Friday was expiration Friday for September 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the eleven covered calls positions for September 2009, four were in-the-money and were rolled-out early to an Oct09 expiration, six were in-the-money at expiration and were therefore exercised and the stocks were called away, and one position, ProShares Short S&P 500 ETF(SH) ended out-of-the-money. Today it was decided to retain the 900 shares of ProShares Short S&P 500 ETF (SH) and to establish an Oct09 covered calls position as follows:

09/24/09 Sell-to-Open (STO) 9 SH Oct09 $58.00s @ $.75

The transactions history to date and the profit potential for the continuation covered calls position in SH is as follows:
08/25/09 Bought 900 SH @ $57.74
08/25/09 Sold 9 SH Sep09 $59.00 Calls @ $.80
09/19/09 Sep09 Options Expired
The price of SH closed at $55.73 on expiration Friday.
09/24/09 Sell-to-Open (STO) 9 SH Oct09 $58.00s @ $.75
The price of SH was $56.57 today when this transaction was executed.

The overall performance results(including commissions) for this SH covered calls position would be as follows:
Stock Purchase Cost: $51,974.95
($57.74*900+$8.95 commission)

Net Profit:
(a) Options Income: +$1,363.60
= (900*($.80+$.75) - 2*$15.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $56.57):
-$1,061.95
= ($56.57-$57.74)*900 - $8.95 commissions
(c) Capital Appreciation (If exercised at $58.00): +$225.05
= ($58.00-$57.74)*900 - $8.95 commissions

Total Net Profit(If stock price unchanged at $56.57): +$301.65
= (+$1,363.60 +$0.00 -$1,061.95)
Total Net Profit(If stock price exercised at $58.00): +$1,584.55
= (+$1,363.60 +$0.00 +$221.05)

Absolute Return if Stock Price Unchanged at $56.57: +0.6%
= +$301.65/$51,974.95
Annualized Return If Stock Price Unchanged (ARIU): +4.0%
= (+$301.65/$51,974.95)*(365/53 days)

Absolute Return if Exercised at $58.00: +3.0%
= +$1,584.55/$51,974.95
Annualized Return If Exercised (ARIE) +21.0%
= (+$1,584.55/$51,974.95)*(365/53 days)

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