Wednesday, September 2, 2009

Establish Herbalife Ltd. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Herbalife Ltd (HLF) covered calls as follows:

Established Herbalife Ltd (HLF) Covered Calls for Sep09:
09/02/09 Bought 300 HLF @ $30.09
09/02/09 Sold 3 HLF Sep09 $30.00 Calls @ $1.00

Herbalife Ltd., a distributor network marketing company, sells weight management, nutritional supplement, energy, sports and fitness, and personal care products worldwide. Herbalife obtains about 80% of its sales internationally. Its most attractive current growth opportunity is in China where they have been recently licensed to increase their presence from five to ten provinces.

You might recall that a covered calls position with an AUG09 expiration was held in Herbalife. The position ended in-the-money and the stock was called away. As demonstrated by this advisor's 'Buy Alerts' spreadsheet below, the strong fundamentals and value-oriented conditions that existed when the previous position was established still remain; so it was decided today to re-establish a covered calls position in HLF with a SEP09 expiration. This Advisor currently has a moderately cautious view towards consumer spending, so a slightly in-the-money covered calls position was established.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for HLF. It scored well above the minimum threshold of 20.0 with a Total Points rating of 21.82.

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

Some potential results from this transaction are:
Absolute Return if Exercised at $30.00: +3.3%
= [($1.00-($30.09-$30.00)]/$30.09
Annualized Return If Exercised (ARIE): +64.9%
= [($1.00 -($30.09-$30.00))]/($30.09)]*(365/17 days)

Downside Breakeven Price Point: $29.09
Downside Breakeven Protection: 3.6%