Monday, November 9, 2009

Roll Up -- UnitedHealth Group Inc.

Today the existing UnitedHealth Group Inc.(UNH) covered calls were rolled up from the Nov09 $26.00 to the Nov09 $29.00 strike price. With the price of UNH at $29.02 today, this position met the Covered Calls Advisor's three criteria for transacting a roll up. The three criteria are:
1. Roll up when the current equity price is more than 10% above the current strike price. At $29.02, the price of UNH was 11.6% above the existing strike price of $26.00.
2. And make the roll transactions when the current equity price is very close to the new strike price (within + or - $.25 of the new strike price) -- i.e. very close to at-the-money. At $29.02, the current stock price was very close (only +$.02) from the potential new $29.00 strike price.
3. And roll (within the same expiration month) if more than 1 week (7 calendar days) until expiration. Roll out to the next expiration month if 1 week or less from the current expiration. There are currently 12 calendar days until Nov09 expiration, so a roll up within the same month was executed.

A roll-up debit spread transaction was executed as follows:
11/09/09 Buy-to-Close (BTC) 4 UNH Nov09 $26.00s @ $3.15
11/09/09 Sell-to-Open (STO) 4 UNH Nov09 $29.00s @ $.92
Note: Net Debit-Spread upon Roll-Up was $2.23 ($3.15 - $.92)

The transactions history to date is as follows:
09/23/09 Bought 400 UNH @ $27.05
09/23/09 Sold 4 UNH Oct09 $26.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of UNH was $24.45 on expiration Friday.
10/19/09 Sell-to-Open (STO) 4 UNH Nov09 $26.00s @ $.80
The price of UNH was $24.77 today when this transaction was executed.
Roll-Up Transaction:
11/09/09 Buy-to-Close (BTC) 4 UNH Nov09 $26.00s @ $3.15
11/09/09 Sell-to-Open (STO) 4 UNH Nov09 $29.00s @ $.92
Note: Net Debit-Spread upon Roll-Up was $2.23 ($3.15 - $.92) and the price of UNH was $29.02 when this debit-spread was transacted.

Some potential overall performance results(including commissions) for this UNH covered calls position would be as follows:
Stock Purchase Cost: $10,828.95
= ($27.05*400+$8.95 commission)

Net Profit:
(a) Options Income: +$172.15
= (400*($1.95+$.80-$3.15+$.92) - 3*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $29.00): +$771.05
= ($29.00-$27.05)*400 - $8.95 commissions

Total Net Profit(If stock price exercised at $29.00): +$943.20
= (+$172.15 +$0.00 +$771.05)

Absolute Return if Exercised at $29.00: +8.7%
= +$943.20/$10,828.95
Annualized Return If Exercised (ARIE) +53.9%
= (+$943.20/$10,828.95)*(365/59 days)

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