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Monday, October 12, 2009

ProShares Short S&P 500 ETF (SH) -- Closed

The Covered Calls Advisor Portfolio (CCAP) covered calls position in ProShares Short S&P 500 ETF (SH) was closed out today (10/12/09).

The transactions history was as follows:
08/25/09 Bought 900 SH @ $57.74
08/25/09 Sold 9 SH Sep09 $59.00 Calls @ $.80
09/19/09 Sep09 Options Expired
The price of SH closed at $55.73 on expiration Friday.
09/24/09 Sell-to-Open (STO) 9 SH Oct09 $58.00s @ $.75
The price of SH was $56.57 today when this transaction was executed.
10/12/09 Bought-to-Close 9 SH Oct09 $58.00 Calls @ $.13
10/12/09 Sold 900 SH @ $55.20

This is the Covered Calls Advisor's first experience with covered calls using this S&P 500 inverse ETF. The good news is that the price of SH moved almost exactly one-for-one inversely (i.e. opposite) to its counterpart S&P 500 index on a percentage movement basis. Consequently, it is likely that out-of-the-money SH covered calls positions will be established whenever this advisor has either (1) a strong conviction regarding the likelihood of a bearish near-term stock market; and/or (2) a desire to hedge a bullish overall portfolio stance toward a more neutral status. The bad news in this instance is that this advisor's expected pullback in the overall market did not occur; instead,the market was bullish during the period the current position was held, so a substantial loss occurred in this position as shown below.

The overall performance results(including commissions) for the SH transactions were as follows:
Stock Purchase Cost: $51,974.95
($57.74*900+$8.95 commission)

Net Profit:
(a) Options Income: +$1,230.90 [900*($.80 +$.75 - $.13)- 3*($8.95 + 9*$.75)] commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$2,294.95
= ($55.20-$57.74)*900 - $8.95 commissions

Total Net Profit: -$1,064.05
= (+$1,230.90 +$0.00 -$2,294.95)

Absolute Return = -2.0%
= -$1,064.05/$51,974.95

Annualized Return: -15.6%
= (-$1,064.05/$51,974.95)*(365/48 days)

5 comments:

  1. Jeff,

    Didn't you have 9 contracts? If I read your post correctly your calculation of Net Profit shows only 3 contracts? Did I miss something?

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  2. Jeff,

    Check your math. I think you should be multipling by 900 & 9, not 300 & 3.

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  3. Thanks to both of you for catching the error. I have now corrected it on the blog post.
    Jeff

    ReplyDelete
  4. Don't want to be picky but I still think you have an error in your calculations i.e. commissions on option transactions. 9 contracts = 8.95 + 9 * 0.75 = $15.70. You have 3 * 11.20?

    Really enjoying following your blog and trades. I'm a committed CCW'er but concentrate mostly on Index ETF's because I'm such a poor stock picker. I like you methodology.

    ReplyDelete
  5. Thanks Tom,

    I actually do appreciate your attention to detail because that is a great and necessary skill for a successful covered calls investor.

    Best wishes with your covered calls investing,

    Jeff

    ReplyDelete