Thursday, October 22, 2009

Establish TD Ameritrade Holding Corporation Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of TD Ameritrade Holding Corporation(AMTD) covered calls. The new position established today was as follows:

Established TD Ameritrade Holding Corporation(AMTD) Covered Calls for Nov09:
10/22/09 Bought 400 AMTD @ $19.70
10/22/09 Sold 4 AMTD Nov09 $20.00 Calls @ $.60

TD AmeriTrade Holding is a leading provider of discount brokerage services for both retail and institutional clients, with the vast majority of its business being conducted online. It has grown rapidly through some fortuitous acquisitions, including TD Waterhouse in 2006, a subsidiary of Fiserv in 2008, and in June this year AMTD acquired thinkorswim, who specializes in options trading and possesses a highly regarded options trading platform. This acquisition is enabling AMTD to continue its rapid growth in the important Daily Average Retail Trades(DARTs) metric. The extent of the benefit from this acquisition will become more apparent when AMTD's 4th quarter earnings are announced next week.

The 'Buy Alerts' spreadsheet below shows that AMTD has a 'Total Points' rating of 21.46 which exceeds the Covered Calls Advisor's desired threshold of 20.0 points.

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

Some possible overall performance results(including commissions) for the AMTD transactions would be as follows:
Stock Purchase Cost: $7,888.95
= ($19.70*400+$8.95 commission)

Net Profit:
(a) Options Income: +$228.05
= (400*$.60 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $19.70): -$8.95
= ($19.70-$19.70)*400 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $20.00): +$111.05
= ($20.00-$19.70)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $19.70): +$219.10
= (+$228.05 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $20.00): +$339.10
= (+$228.05 +$0.00 +$111.05)

Absolute Return if Stock Price Unchanged at $19.70: +2.8%
= +$219.10/$7,888.95
Annualized Return If Unchanged (ARIU): +33.8%
= (+$219.10/$7,888.95)*(365/30 days)

Absolute Return if Stock Exercised at $20.00: +4.3%
= +$339.10/$7,888.95
Annualized Return If Exercised (ARIE): +52.3%
= (+$339.10/$7,888.95)*(365/30 days)

The downside breakeven price for this out-of-the-money position is $19.10 ($19.70-$.60) which provides a downside profit protection of up to 2.8% below the purchase price.