Monday, October 19, 2009

Continuation Transactions -- Fluor Corporation (FLR) and UnitedHealth Group Inc. (UNH)

Last Friday was expiration Friday for October 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the thirteen covered calls positions for October 2009, two were closed out prior to expiration, two were in-the-money and were rolled-up-and-out early to a Nov09 expiration, seven were in-the-money at expiration and were therefore exercised and the stocks were called away, and two positions, Fluor Corporation(FLR) and UnitedHealth Group Inc.(UNH) ended out-of-the-money. Today it was decided to retain both the 300 shares of FLR and the 400 shares of UNH and to establish Nov09 covered calls position as follows:

1. Fluor Corporation(FLR) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in FLR is as follows:
09/22/09 Bought 300 FLR @ $54.93
09/22/09 Sold 3 FLR Oct09 $55.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of FLR was $50.24 on expiration Friday.
10/19/09 Sell-to-Open (STO) 3 FLR Nov09 $55.00s @ $.95
The price of FLR was $51.57 today when this transaction was executed.

Some potential overall performance results(including commissions) for this FLR covered calls position would be as follows:
Stock Purchase Cost: $16,487.95
($54.93*300+$8.95 commission)

Net Profit:
(a) Options Income: +$847.60
= (300*($1.95+$.95) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $51.57):
-$1,016.95 = ($51.57-$54.93)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $55.00): +$12.05
= ($55.00-$54.93)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $51.57): -$169.35
= (+$847.60 +$0.00 -$1,016.95)
Total Net Profit(If stock price exercised at $55.00): +$859.65
= (+$847.60 +$0.00 +$12.05)

Absolute Return if Stock Price Unchanged at $51.57: -1.0%
= -$169.35/$16,487.95
Annualized Return If Stock Price Unchanged (ARIU): -6.2%
= (+$301.65/$51,974.95)*(365/60 days)

Absolute Return if Exercised at $55.00: +5.2%
= +$859.65/$16,487.95
Annualized Return If Exercised (ARIE) +31.7%
= (+$859.65/$16,487.95)*(365/60 days)


2. UnitedHealth Group Inc.(UNH) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in UNH is as follows:
09/23/09 Bought 400 UNH @ $27.05
09/23/09 Sold 4 UNH Oct09 $26.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of UNH was $24.45 on expiration Friday.
10/19/09 Sell-to-Open (STO) 4 UNH Nov09 $26.00s @ $.80
The price of UNH was $24.77 today when this transaction was executed.

Some potential overall performance results(including commissions) for this UNH covered calls position would be as follows:
Stock Purchase Cost: $10,828.95
($27.05*400+$8.95 commission)

Net Profit:
(a) Options Income: +$1,076.10
= (400*($1.95+$.80) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $24.77):
-$920.95 = ($24.77-$27.05)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $26.00): -$428.95
= ($26.00-$27.05)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.77): +$155.15
= (+$1,076.10 +$0.00 -$920.95)
Total Net Profit(If stock price exercised at $26.00): +$647.15
= (+$1,076.10 +$0.00 -$428.95)

Absolute Return if Stock Price Unchanged at $24.77: +1.4%
= +$155.15/$10,828.95
Annualized Return If Stock Price Unchanged (ARIU): +8.9%
= (+$155.15/$10,828.95)*(365/59 days)

Absolute Return if Exercised at $26.00: +6.0%
= +$647.15/$10,828.95
Annualized Return If Exercised (ARIE) +37.0%
= (+$647.15/$10,828.95)*(365/59 days)

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