Friday, October 16, 2009

Establish Sohu.com Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Sohu.com Inc. (SOHU) covered calls as follows:

Established Sohu.com Inc. (SOHU) Covered Calls for Nov09:
10/16/09 Bought 200 SOHU @ $64.05
10/16/09 Sold 2 SOHU Nov09 $65.00 Calls @ $3.50

Sohu.com is an internet services provider to consumers and businesses in China. Their services include brand advertising, sponsored search, online games, and wireless services. It ranks very high on the Covered Calls Advisor 'Buy Alerts' worksheet shown below with a 'Total Points' rating of 23.66, well above the desired threshold of 20.0 points. It demonstrates Sohu's compelling value, profitability, and growth characteristics. In addition, the balance sheet is very strong with high cash levels and no debt.
























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


Some possible overall performance results(including commissions) for the SOHU transactions would be as follows:
Stock Purchase Cost: $12,818.95
= ($64.05*200+$8.95 commission)

Net Profit:
(a) Options Income: +$689.55
= (200*$3.50 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $64.05):
-$8.95 = ($65.05-$65.05)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $65.00): +$181.05
= ($65.00-$64.05)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $64.05): +$680.60
= (+$689.55 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $65.00): +$870.60
= (+$689.55 +$0.00 +$181.05)

Absolute Return if Stock Price Unchanged at $64.05: +5.3%
= +$680.60/$12,818.95
Annualized Return If Unchanged (ARIU): +53.8%
= (+$680.60/$12,818.95)*(365/36 days)

Absolute Return if Stock Exercised at $65.00: +6.8%
= +$870.60/$12,818.95
Annualized Return If Exercised (ARIE): +68.9%
= (+$870.60/$12,818.95)*(365/36 days)

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