Wednesday, September 9, 2009

Continuation Transaction -- U.S. Natural Gas Fund

The Covered Calls Advisor's Aug09 UNG covered calls position expired out-of-the-money. Today it was decided to retain the 1000 shares of the U.S. Natural Gas Fund (UNG) and to establish a Sep09 covered calls position as follows:

09/09/09 Sell-to-Open (STO) 10 UNG Sep09 $11.00s @ $.40

The price of Nat Gas has plunged recently and even traded below $2.50, which is well below the $3.00 floor expected by this advisor. However, as the price rebounded somewhat in the past two days to the $2.90 area, it was decided to continue with the UNG covered calls position for the Sep09 expiration and to re-evaluate late next week as to whether the position should be extended to an Oct09 expiration.

The transactions history to date is as follows:
06/30/09 Bought 1000 UNG @ $13.92
06/30/09 Sold 10 UNG Jul09 $14.00 Calls @ $.75
07/18/09 Jul09 Options Expired
The price of UNG closed at $13.16 on expiration Friday.
07/22/09 Sell-to-Open (STO) 10 UNG Aug09 $14.00 Calls @ $.75
The price of UNG was $13.73 today when this transaction was executed.
08/22/09 Aug09 Options Expired
The price of UNG closed at $11.35 on expiration Friday.
09/09/09 Sell-to-Open (STO) 10 UNG Sep09 $11.00s @ $.40
The price of UNG was $10.79 today when this transaction was executed.

The overall performance results(including commissions) for the UNG transactions would be as follows:
Stock Purchase Cost: $13,928.95
($13.92*1000+$8.95 commission)

Net Profit:
(a) Options Income: +$1,850.65
= (1000*($.75+$.75+$.40) - 3*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock unchanged at $10.79): -$3,138.95
= ($10.79-$13.92)*1000 - $8.95 commissions
(c) Capital Appreciation (If exercised at $11.00): -$2,928.95
= ($11.00-$13.92)*1000 - $8.95 commissions

Total Net Profit(If stock price unchanged at $10.79): -$1,288.30
= (+$1,850.65 +$0.00 -$3,138.95)
Total Net Profit(If stock price exercised at $11.00): -$1,078.30
= (+$1,850.65 +$0.00 -$2,928.95)

Absolute Return if Stock Price Unchanged at $10.79: -9.2%
= -$1,288.30/$13,928.95
Annualized Return If Unchanged (ARIU): -41.7%
= (-$1,288.30/$13,928.95)*(365/81 days)

Absolute Return if Exercised at $11.00: -7.7%
= -$1,078.30/$13,928.95
Annualized Return If Exercised (ARIE): -34.9%
= (-$1,078.30/$13,928.95)*(365/81 days)

1 comment:

  1. Sounds like a negative return either way. Unless I read the expected Returns the wrongly.

    If it is a negative return, what would be the justification for the trade?

    Great posts!

    Loyal Reader
    -John in Anaheim

    ReplyDelete