Sunday, October 18, 2009

October 2009 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of thirteen positions with October 2009 expirations. Four of these positions were modified prior to the Oct09 expiration date and the other nine positions were held until expiration.

- Two positions were closed out prior to expiration. These two positions were the Covered Calls Advisor's first experience with using inverse ETFs for covered calls positions. The results this month were mixed since the ProShares Short S&P 500 ETF(SH) was closed at a net loss and the ProShares UltraShort 20+ Year Treasury ETF (TBT) was closed with a small profit. Detailed results for each of these closed positions were posted previously on this blog. Importantly, it was determined that these two ETFs will be useful underlying equities for establishing covered calls positions whenever this advisor thinks there is a likelihood we are facing either a bearish overall market [establish an out-of-the-money position in SH] or potentially higher interest rates (establish an out-of-the-money position in TBT). An important point here is that a significant advantage for potential annualized returns is provided from establishing an out-of-the-money position on an inverse ETF (such as SH) when compared with an alternative of establishing an in-the-money position on its counterpart (such as SPY). This is because the out-of-the-money position retains the possibility of achieving a capital appreciation return on the investment whereas an in-the-money position precludes any capital appreciation return from being obtained.

- Two positions [Accenture Ltd(ACN) and Noble Corporation(NE)] that were in-the-money just prior to Oct09 expiration were retained in the Covered Calls Advisor Portfolio and were rolled-up-and-out from an Oct09 to a Nov09 expiration. This advisor continues to be bullish on these two companies' short-term prospects, so they were both rolled-up-and-out. The associated transactions were detailed in prior posts earlier this week on this blog.

Of the nine remaining positions that were held until Oct09 expiration:
- Two positions in the CCAP [Fluor Corporation(FLR) and UnitedHealth Group Inc.(UNH)] ended out-of-the-money. A decision will be made to either sell the stocks or to keep them and sell calls to establish Nov09 covered call position. It is likely that both stocks will be retained in the CCAP and that Nov09 covered calls positions will be established. The related transactions will be made early next week and the transactions will be posted on this blog site on the same day they occur.

- Seven positions [Amgen Inc.(AMGN), Aspen Insurance Holdings Ltd(AHL), China Mobile Ltd.(CHL), EMCOR Group Inc.(EME), Family Dollar Stores Inc(FDO), iShares MSCI China Fund ETF(FXI), and the iShares Emerging Markets Fund ETF(EEM)] closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for these seven exercised positions were:
Amgen Inc.(AMGN): +26.5%
Aspen Insurance Holdings Ltd(AHL): +28.7%
China Mobile Ltd.(CHL): +42.7%
EMCOR Group Inc.(EME): +64.4%
Family Dollar Stores Inc.(FDO): +90.2%
iShares MSCI China Fund ETF(FXI): +35.0%
iShares Emerging Markets Fund ETF(EEM): +32.0%

Detailed results for these seven positions that were assigned (called away) upon Oct09 expiration are as follows:

1. Amgen Inc.(AMGN) -- Closed
The transactions history was as follows:
09/17/09 Bought 300 AMGN @ $59.88
09/17/09 Sold 3 AMGN Oct09 $57.50 Calls @ $3.75
10/17/09 Oct09 Options Exercised (300 shares of AMGN called away at $57.50)
Note: Closing price of AMGN was $61.32 on expiration Friday.

The overall performance results(including commissions) for the AMGN transactions are as follows:
Stock Purchase Cost: $17,972.95
($59.88*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,113.80
= [300*$3.75) - $11.20 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $57.50): -$722.95
= ($57.50-$59.88)*300 - $8.95 commissions

Total Net Profit: +$390.85
= (+$1,113.80 +$0.00 -$722.95)

Absolute Return: +2.2%
= +$390.85/$17,972.95
Annualized Return: +26.5%
= (+$390.85/$17,972.95)*(365/30 days)

2. Aspen Insurance Holdings Inc.(AHL) -- Closed
The transactions history was as follows:
09/18/09 Bought 500 AHL @ $26.16
09/18/09 Sold 5 AHL Oct09 $25.00 Calls @ $1.80
10/17/09 Oct09 Options Exercised (500 shares of AHL called away at $25.00)
Note: Closing price of AHL was $28.06 on expiration Friday.

The overall performance results(including commissions) for the AHL transactions are as follows:
Stock Purchase Cost: $13,088.95
($26.16*500+$8.95 commission)

Net Profit:
(a) Options Income: +$887.30
= (500*$1.80 - $12.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $25.00): -$588.95
= ($25.00-$26.16)*500 - $8.95 commissions

Total Net Profit: +$298.35
= (+$887.30 +$0.00 -$588.95)

Absolute Return: +2.3%
= +$298.35/$13,088.95
Annualized Return: +28.7%
= (+$298.35/$13,088.95)*(365/29 days)

3. China Mobile Ltd.(CHL) -- Closed
The transactions history was as follows:
09/24/09 Bought 200 CHL @ $50.25
09/24/09 Sold 2 CHL Oct09 $50.00 Calls @ $1.70
10/17/09 Oct09 Options Exercised (200 shares of CHL called away at $50.00)
Note: Closing price of CHL was $50.12 on expiration Friday.

The overall performance results(including commissions) for the CHL transactions are as follows:
Stock Purchase Cost: $10,058.95
($50.25*200+$8.95 commission)

Net Profit:
(a) Options Income: +$329.55
= (200*$1.70 - $10.45 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $50.00): -$58.95
= ($50.00-$50.25)*200 - $8.95 commissions

Total Net Profit: +$270.60
= (+$329.55 +$0.00 -$58.95)

Absolute Return: +2.7%
= +$270.60/$10,058.95
Annualized Return: +42.7%
= (+$390.85/$17,972.95)*(365/23 days)

4. EMCOR Group Inc.(EME) -- Closed
The transactions history was as follows:
09/25/09 Bought 300 EME @ $24.91
09/25/09 Sold 3 EME Oct09 $25.00 Calls @ $.95
10/17/09 Oct09 Options Exercised (300 shares of EME called away at $25.00)
Note: Closing price of EME was $25.13 on expiration Friday.

The overall performance results(including commissions) for the EME transactions are as follows:
Stock Purchase Cost: $7,481.95
($24.91*300+$8.95 commission)

Net Profit:
(a) Options Income: +$272.30
= (300*$.95 - $12.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $25.00): +$18.05
= ($25.00-$24.91)*300 - $8.95 commissions

Total Net Profit: +$290.35
= (+$272.30 +$0.00 +$18.05)

Absolute Return: +3.9%
= +$290.35/$7,481.95
Annualized Return: +64.4%
= (+$290.35/$7,481.95)*(365/22 days)

5. Family Dollar Stores Inc.(FDO) -- Closed
The transactions history was as follows:
09/23/09 Bought 300 FDO @ $26.65
09/23/09 Sold 3 FDO Oct09 $27.50 Calls @ $.80
10/17/09 Oct09 Options Exercised (300 shares of FDO called away at $27.50)
Note: Closing price of FDO was $28.36 on expiration Friday.

The overall performance results(including commissions) for the FDO transactions are as follows:
Stock Purchase Cost: $8,003.95
($26.65*300+$8.95 commission)

Net Profit:
(a) Options Income: +$228.80
= (300*$.80 - $11.20 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $27.50): +$246.05
= ($27.50-$26.65)*300 - $8.95 commissions

Total Net Profit: +$474.85
= (+$228.80 +$0.00 +$246.05)

Absolute Return: +5.9%
= +$474.85/$8,003.95
Annualized Return: +90.2%
= (+$474.85/$8,003.95)*(365/24 days)

6. iShares MSCI China Fund ETF(FXI) -- Closed
The transactions history was as follows:
08/28/09 Bought 1000 FXI @ $40.04
08/28/09 Sold 10 FXI Sep09 $39.00 Calls @ $1.95
Roll-Up-and-Out Transaction:
09/17/09 Buy-to-Close (BTC) 10 FXI Sep09 $39.00s @ $4.97
09/17/09 Sell-to-Open (STO) 10 FXI Oct09 $43.00s @ $2.02
Note: The price of FXI was $43.93 today when this debit-spread was transacted.
10/17/09 Oct09 Options Exercised (1000 shares of FXI called away at $43.00)
Note: Closing price of FXI was $43.17 on expiration Friday.

The overall performance results(including commissions) for the FXI transactions are as follows:
Stock Purchase Cost: $40,048.95
($40.04*1000+$8.95 commission)

Net Profit:
(a) Options Income: -$1,032.90
= [1000*($1.95-$4.97+$2.02) - 2*$16.45 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $43.00): +$2,951.05
= ($43.00-$40.04)*1000 - $8.95 commissions

Total Net Profit: +$1,918.15
= (-$1,032.90 +$0.00 +$2,951.05)

Absolute Return: +4.8%
= +$1,918.15/$40,048.95
Annualized Return: +35.0%
= (+$1,918.15/$40,048.95)*(365/50 days)

7. iShares Emerging Markets ETF(EEM) -- Closed
The transactions history was as follows:
08/25/09 Bought 500 EEM @ $36.64
08/25/09 Sold 5 EEM Sep09 $36.00 Calls @ $1.56
Roll-Up-and-Out Transaction:
09/17/09 Buy-to-Close (BTC) 5 EEM Sep09 $36.00s @ $3.29
09/17/09 Sell-to-Open (STO) 5 EEM Oct09 $38.00s @ $2.14
Note: The price of EEM was $39.24 today when this debit-spread was transacted and the remaining time value in the Sep09 option was only $.05 [$3.29-($39.24-$36.00)].
10/17/09 Oct09 Options Exercised (500 shares of EEM called away at $38.00)
Note: Closing price of EEM was $40.75 on expiration Friday.

The overall performance results(including commissions) for this EEM covered calls position was as follows:
Stock Purchase Cost: $18,328.95
($36.64*500+$8.95 commission)

Net Profit:
(a) Options Income: +$179.60
= (500*($1.56-$3.29+$2.14) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $38.00): +$671.05
= ($38.00-$36.64)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $38.00): +$850.65
= (+$179.60 +$0.00 +$671.05)

Absolute Return: +4.6%
= +$850.65/$18,328.95
Annualized Return: +32.0%
= (+$850.65/$18,328.95)*(365/53 days)

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