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Tuesday, October 13, 2009

Roll Up and Out -- Accenture Ltd. (ACN)

Accenture is going ex-dividend tomorrow (10/14/09) with an annual dividend payment of $.75 per share. Today, it was decided to retain the Covered Calls Advisor Portfolio position in Accenture Ltd. (ACN) and to roll-out-and-up to the Nov09 expiration at the $40.00 strike price. The current Oct09 $35.00 covered calls were well in-the-money today (with ACN at $39.18), and since the time value remaining in the options was only $.02 [$4.20-($39.18-$35.00)], a roll-out-and-up debit spread transaction was executed as follows:
10/13/09 Buy-to-Close (BTC) 3 ACN Oct09 $35.00s @ $4.20
10/13/09 Sell-to-Open (STO) 3 ACN Nov09 $40.00s @ $.80
Note: Net Debit-Spread upon Roll-Up was $3.40 ($4.20 - $.80)

With this transaction, this advisor decided it was preferable to keep ACN and capture the $.75 ex-dividend tomorrow rather than allow ACN to be called away today at the $35.00 strike price.

Hence, the transactions history to date is as follows:
08/24/09 Bought 300 ACN @ $35.51
08/24/09 Sold 3 ACN Sep09 $35.00 Calls @ $1.15
Roll-Out Transaction:
09/18/09 Buy-to-Close (BTC) 10 ACN Sep09 $35.00s @ $1.10
09/18/09 Sell-to-Open (STO) 10 ACN Oct09 $35.00s @ $1.90
Note: The price of ACN was $36.08 today when this debit-spread was transacted.
10/13/09 Buy-to-Close (BTC) 3 ACN Oct09 $35.00s @ $4.20
10/13/09 Sell-to-Open (STO) 3 ACN Nov09 $40.00s @ $.80
Note: The price of ACN was $39.18 today when this debit-spread was transacted.

Some possible overall performance results(including commissions) for the ACN transactions would be as follows:
Stock Purchase Cost: $10,661.95
= ($35.51*300+$8.95 commission)

Net Profit:
(a) Options Income: -$468.60
= (300*($1.15-$1.10+$1.90-$4.20+$.80) - 3*$11.20 commissions)
(b) Dividend Income: +$225.00 ($.75 * 300 shares)
(c) Capital Appreciation (If stock price unchanged at $39.18): +$1,092.05
= ($39.18-$35.51)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $40.00): +$1,338.05
= ($40.00-$35.51)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $39.18): +$848.45
= (-$468.60 +$225.00 +$1,092.05)
Total Net Profit(If stock price exercised at $40.00): +$1,094.45
= (-$468.60 +$225.00 +$1,338.05)

Absolute Return if Unchanged at $39.18: +8.0%
= +$848.45/$10,661.95
Annualized Return If Unchanged (ARIU) +32.6%
= (+$848.45/$10,661.95)*(365/89 days)

Absolute Return if Exercised at $40.00: +10.3%
= +$1,094.45/$10,661.95
Annualized Return If Exercised (ARIE) +42.1%
= (+$1,094.45/$10,661.95)*(365/89 days)

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