Saturday, July 25, 2009

Country Value Rankings -- China Remains #1

Below is a the Covered Calls Advisor's current 'Country Value Rankings' table. This table provides a value-oriented perspective that assists this advisor make objective decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's portfolio. A comprehensive approach to asset allocation goes beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.); it should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Also in this regard, John Templeton was a leader in advocating the importance of developing a global-oriented value investing perspective to aid us in achieving investing outperformance.





Note: For expanded view, left click on this spreadsheet













The Country Value Rankings table above is based on a weighted-average ranking system. You will notice that there are eight categories (and one factor for each category) used in the analysis of each country as follows:









The next-to-last column on the Country Value Rankings spreadsheet shows the Weighted Average Summation Total for each country. China received the highest total points at 24.22 and thus is now considered the #1 ranked country as a value-oriented investing opportunity. Consequently, as shown in the right sidebar section here called "Current CCA Portfolio Holdings", you will notice that there is a substantial commitment to China-based equities. Also of note in this Country Value Rankings spreadsheet is (1) the dominance of Asian-based countries in each the top six positions; and (2) the U.S. ranks 12th among the 20 countries/regions included in these rankings.

This Country Value Rankings spreadsheet is detailed in terms of both the methodolgy used and the resources used to capture the information for each country. If you are interested in these details and would like further clarification, please share your comments and questions in writing -- they are always welcomed. Click the 'comments' link below to post your feedback. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog.

Hope this information is helpful in your thinking about your equities selection in your covered calls investing process!

Regards and Godspeed to All,

Jeff

Thursday, July 23, 2009

Establish Synaptics Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Synaptics Inc.(SYNA) covered calls as follows:

Established Synaptics Inc.(SYNA) Covered Calls for Aug09:
07/23/09 Bought 300 SYNA @ $33.95
07/23/09 Sold 3 SYNA Aug09 $35.00 Calls @ $1.80

Synaptics Inc is a worldwide leader in developing touchscreen applications for the laptop (58% of revenues) and mobile phone (42% of revenues) industries. Its current market share in worldwide laptops is about 60%. While Synaptics does not currently supply to Apple, some of its primary customers are RIMM, Nokia, and LG. The current growth opportunities for SYNA are substantial, including: (1) The Windows 7 Operating System will be the first Windows system to offer a multi-touch screen interface support capability; (2) As reported by Intel in its most recent quarterly earnings conference call, they are now seeing a resurgence in notebook demand; and (3) the announcement this week of its product-line offerings expansion with its new ClearPad 1000 (low-end) and 3000(high-end) products. Each of these three situations will provide strong incremental demand for Synaptics' product offerings. In addition, Synaptics is attractive from a valuation perspective since the current year P/E of 16 seems relatively low in relation to the potential for 20%+ annual growth over the next several years.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for SYNA. It scored well above the minimum threshold of 20.0 with a Total Points rating of 22.76.





















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

Some potential results from this transaction are:
Absolute Return if Stock Price Unchanged at $33.95: +5.3%
Annualized Return If Unchanged (ARIU): +64.5%

Absolute Return if Exercised at $35.00: +8.4%
Annualized Return If Exercised (ARIE): +102.1%

Downside Breakeven Price Point: $32.15
Downside Breakeven Protection: 5.3%

Wednesday, July 22, 2009

Continuation Transaction -- United States Natural Gas Fund ETF Covered Calls

Last Friday was expiration Friday for July 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the nine covered calls positions for July 2009, four were exercised and the stock was called away. The remaining five Jul09 positions expired out-of-the-money. On Monday it was decided to sell one stock (BAC) and to retain three stocks (CHL, EME, and SOHU) and to establish Aug09 covered calls for each one. A final decision regarding the remaining position in the United States Natural Gas Fund ETF (UNG) was deferred until a later time.

Today this advisor decided to retain the 1000 shares currently held in UNG and to establish Aug09 covered calls against this holding. UNG invests in near-month futures contracts and tracks the price of natural gas. As described last month when the initial covered calls position in UNG was established, "the Covered Calls Advisor believes that natural gas is a cost effective, clean, and abundant alternative fuel and will be an increasingly important resource in fulfilling future U.S. energy needs. At its current price, this advisor further believes that Nat Gas now trades at the lower end of its likely price range for the next several months." The price of natural gas has remained at a price level similar to where it traded one month ago when the initial covered calls were established, and my conviction remains unchanged that nat gas prices will increase during the next several months. Consequently, a continuation of the prior UNG covered calls position was established today with a $14.00 strike price and an Aug09 expiration.

The transactions history to date and some potential investment results are detailed below.

United States Natural Gas Fund ETF (UNG) -- Continuation
The transactions history to date is as follows:
06/30/09 Bought 1000 UNG @ $13.92
06/30/09 Sold 10 UNG Jul09 $14.00 Calls @ $.75
07/18/09 Jul09 Options Expired
The price of UNG closed at $13.16 on expiration Friday.
07/22/09 Sell-to-Open (STO) 10 UNG Aug09 $14.00 Calls @ $.75
The price of UNG was $13.73 today when this transaction was executed.

The overall performance results(including commissions) for the UNG transactions would be as follows:
Stock Purchase Cost: $13,928.95
($13.92*1000+$8.95 commission)

Net Profit:
(a) Options Income: +$1,467.10
= (1000*($.75+$.75) - 2*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock unchanged at $13.73): -$198.95
= ($13.73-$13.92)*1000 - $8.95 commissions
(c) Capital Appreciation (If exercised at $14.00): +$71.05
= ($14.00-$13.92)*1000 - $8.95 commissions

Total Net Profit(If stock price unchanged at $13.73): +$1,268.15
= (+$1,467.10 +$0.00 -$198.95)
Total Net Profit(If stock price exercised at $14.00): +$1,538.15
= (+$1,467.10 +$0.00 +$71.05)

Absolute Return if Stock Price Unchanged at $13.73: +9.1%
= +$1,268.15/$13,928.95
Annualized Return If Unchanged (ARIU): +62.7%
= (+$1,268.15/$13,928.95)*(365/53 days)

Absolute Return if Exercised at $14.00: +11.0%
= +$1,538.15/$13,928.95
Annualized Return If Exercised (ARIE): +76.0%
= (+$1,538.15/$13,928.95)*(365/53 days)

Establish iShares MSCI China ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI China ETF (FXI). The previous FXI position with a Jul09 expiration ended in-the-money, so the FXI ETF position was called away. Since China continues to rank #1 in this advisor's '2009 Country Value Rankings', it was decided to establish a new covered calls position in FXI with an Aug09 expiration. A summary of the transactions today is as follows:


Established iShares MSCI China ETF (FXI) Covered Calls for Aug09:
07/22/09 Bought 1000 FXI @ $40.44
07/22/09 Sold 10 FXI Aug09 $39.00 Calls @ $2.45


Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 7.5% in 2009. This compares with a projection of negative growth this year in most of the world's major countries.
- Estimated inflation of 0%
- Price/Book ratio of 2.37 is a below-average valuation relative to other countries (for example, U.S. is currently at 3.41).


The FXI ETF was selected as the primary investment vehicle for achieving exposure to China's stock market performance. It consists of market-cap-weighted positions in the 25 largest companies in China, and although it is most heavily weighted in the financial, energy, and telecommunications sectors, it still provides a relatively good way to diversify across the Chinese economy. Since China remains as the Covered Calls Advisor's top investment idea, a major commitment of 15% of the total CCAP is now allocated to FXI covered calls.

Some key indicators for this FXI covered calls position are:

Absolute Return if Exercised at $39.00: +2.5%
= [$2.45 - ($40.44 - $39.00)]/$40.44
Annualized Return if Exercised(ARIE): +29.4%
= [$2.45 - ($40.44 - $39.00)]/(365/31 days)

Downside Breakeven Price Point: $37.99
Downside Breakeven Protection: 6.1%
This in-the-money position also affords up to 3.6% [($40.44-$39.00)/$40.44] downside protection available while still achieving the maximum potential annualized return-on-investment of 29.4% from this covered calls position.

Tuesday, July 21, 2009

Establish Aspen Insurance Holdings Ltd. Covered Calls


A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Aspen Insurance Holdings Ltd.(AHL) covered calls as follows:

Established Aspen Insurance Holdings Ltd.(AHL) Covered Calls for Aug09:
07/21/09 Bought 500 AHL @ $24.95
07/21/09 Sold 5 AHL Aug09 $25.00 Calls @ $.90

Aspen Insurance Holdings Limited, through its subsidiaries, provides insurance and reinsurance products and services in the United Kingdom, the United States, and internationally. AHL's primary business is in catastrophe reinsurance including earthquakes, hurricanes, and floods. However it is continuing to grow and diversify into additional insurance and reinsurance areas. It represents an attractive, value-oriented investment at this time as it is expected to earn $4.00 per share this fiscal year. In addition, at AHL's current price the stock trades at only about 80% of its book value.

Some potential results from this transaction are:
Absolute Return if Stock Price Unchanged at $24.95: +4.2%
Annualized Return If Unchanged (ARIU): +48.0%

Absolute Return if Exercised at $25.00: +4.4%
Annualized Return If Exercised (ARIE): +50.3%

Downside Breakeven Price Point: $23.90
Downside Breakeven Protection: 4.2%

Note: Although a quarterly dividend has not yet been declared, it is likely that there will be a $.15 ex-div payment on or near Aug 11th. This dividend is included in the returns shown above.

Monday, July 20, 2009

Establish Herbalife Ltd. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Herbalife Ltd (HLF) covered calls as follows:

Established Herbalife Ltd (HLF) Covered Calls for Aug09:
07/20/09 Bought 500 HLF @ $32.10
07/20/09 Sold 5 HLF Aug09 $30.00 Calls @ $3.32

Herbalife Ltd., a distributor network marketing company, sells weight management, nutritional supplement, energy, sports and fitness, and personal care products worldwide.

Herbalife obtains about 80% of its sales internationally. Its most attractive current growth opportunity is in China where they have been recently licensed to increase their presence from five to ten provinces.

This Advisor currently has a moderately cautious view towards consumer spending. Consequently, a conservative in-the-money position was established with up to 6.5% [($32.10-$30.00)/$32.10] downside protection available while still achieving the maximum potential annualized return-on-investment of 42.0% from this covered calls position.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for HLF. It scored well above the minimum threshold of 20.0 with a Total Points rating of 22.32.




















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

Some potential results from this transaction are:
Absolute Return if Exercised at $30.00: +3.8%
= [($3.32-($32.10-$30.00)]/$32.10
Annualized Return If Exercised (ARIE): +42.0%
= [($3.32-($32.10-$30.00))]/($32.10)]*(365/33 days)

Downside Breakeven Price Point: $28.78
Downside Breakeven Protection: 10.3%

Continuation Transactions -- China Mobile, EMCOR Group, and Sohu.com

Last Friday was expiration Friday for July 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the nine covered calls positions for July 2009, four were exercised and the stock was called away. The remaining five July09 positions expired out-of-the-money. Today it was decided to sell one stock (BAC) and to retain three stocks (CHL, EME, and SOHU) and to establish Aug09 covered calls for each one. No decision has been made yet regarding the other holding which is in UNG. The transactions history to date and the profit potential for each of these three companies is detailed below.

1. China Mobile LTD ADR (CHL) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 400 shares owned in China Mobile LTD ADR (CHL):
07/20/09 Sell-to-Open (STO) 4 CHL Aug09 $50s @ $2.50
The price of CHL was $50.95 today when this transaction was executed.

The transactions history to date is as follows:
04/20/09 Initial Stock Purchase Transaction -- Bought 400 CHL @ $45.65
04/20/09 Inital Calls Sold Transaction -- Sold 4 CHL May09 $45.00 Calls @ $2.40
A debit-spread transaction was executed as follows:
05/06/09 Buy-to-Close (BTC) 4 CHL May09 $45s @ $3.70
05/06/09 Sell-to-Open (STO) 4 CHL May09 $50s @ $.65
Note: The price of CHL was $48.51 today when the debit-spread was transacted.
05/11/09 Ex-Div of $362.32($.9058 * 400 shares)
05/16/09 May09 Options Expired
Note: The closing price of CHL closed at $46.06 on expiration Friday.
05/18/09 Sell-to-Open (STO) 4 CHL Jun09 $50s @ $1.25
Note: The price of CHL was $47.30 today when the call options were sold.
06/20/09 Jun09 Options Expired
06/24/09 Sell-to-Open (STO) 4 CHL Jul09 $50s @ $1.75
The price of CHL was $49.75 today when this transaction was executed.
07/18/09 Jul09 Options Expired
The price of CHL closed at $49.81 on expiration Friday.
07/20/09 Sell-to-Open (STO) 4 CHL Aug09 $50s @ $2.50
The price of CHL was $50.95 today when this transaction was executed.

The overall performance results(including commissions) for the CHL transactions would be as follows:
Stock Purchase Cost: $18,268.95
($45.65*400+$8.95 commission)

Net Profit:
(a) Options Income: +$1,880.25
= (400*($2.40-$3.70+$.65+$1.25+$1.75+$2.50) - 5*$11.95 commissions)
(b) Dividend Income: +$362.32 ($.9058 * 400 shares)
(c) Capital Appreciation (If exercised at $50.00): +$1,731.05
= ($50.00-$45.65)*400 - $8.95 commissions

Total Net Profit(If stock price exercised at $50.00): +$3,973.62
= (+$1,880.25 +$362.32 +$1,731.05)

Absolute Return if Exercised at $50.00: +21.8%
= +$3,973.62/$18,268.95
Annualized Return If Exercised (ARIE): +64.0%
= (+$3,973.62/$18,268.95)*(365/124 days)

2. EMCOR Group Holdings Inc. (EME) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 500 shares owned in EMCOR Holdings Inc (EME):
07/20/09 Sell-to-Open (STO) 5 EME Aug09 $20s @ $1.30
The price of EME was $20.04 today when this transaction was executed.

The transactions history to date is as follows:
06/17/09 Bought 500 EME @ $19.81
06/17/09 Sold 5 EME Jul09 $20.00 Calls @ $1.40
07/18/09 Jul09 Options Expired
The price of EME closed at $19.94 on expiration Friday.
07/20/09 Sell-to-Open (STO) 4 EME Aug09 $20s @ $1.30
The price of EME was $20.04 today when this transaction was executed.

The overall performance results(including commissions) for the EME transactions would be as follows:
Stock Purchase Cost: $9,913.95
= ($19.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$824.60
= (500*($1.40+$1.30) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $20.00): +$86.05
= ($20.00-$19.81)*500 - $8.95 commissions

Total Net Profit(If stock price exercised at $20.00): +$910.65
= (+824.60 +$0.00 +$86.05)

Absolute Return if Exercised at $20.00: +9.2%
= +$910.65/$9,913.95
Annualized Return If Exercised (ARIE) +50.8%
= (+$910.65/$9,913.95)*(365/66 days)


3. Sohu.com Inc (SOHU) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 400 shares owned in Sohu.com Inc (SOHU):
07/20/09 Sell-to-Open (STO) 4 SOHU Aug09 $65s @ $3.40

The transactions history to date is as follows:
05/19/09 Initial Stock Purchase Transaction -- Bought 400 SOHU @ $54.50
05/19/09 Inital Calls Sold Transaction -- Sold 4 SOHU Jun09 $55.00 Calls @ $3.00
A debit-spread transaction was executed as follows:
05/29/09 Buy-to-Close (BTC) 4 SOHU Jun09 $55s @ $5.84
05/29/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $2.51
Note: The price of SOHU was $59.85 today when the debit-spread was transacted.
06/03/09 Buy-to-Close (BTC) 4 SOHU Jun09 $60s @ $6.15
06/03/09 Sell-to-Open (STO) 4 SOHU Jun09 $65s @ $2.89
Note: The price of SOHU was $65.02 today when the debit-spread was transacted.
06/20/09 Jun09 Options Expired
06/24/09 Sell-to-Open (STO) 4 SOHU Jul09 $65s @ $2.85
Note: The price of SOHU was $64.60 today when the debit-spread was transacted.
07/18/09 Jul09 Options Expired
The price of SOHU closed at $62.00 on expiration Friday.
07/20/09 Sell-to-Open (STO) 4 SOHU Aug09 $65.00s @ $3.40
The price of SOHU was $63.80 today when this transaction was executed.

The overall performance results(including commissions) for this SOHU covered calls position would be as follows:
Stock Purchase Cost: $21,808.95
($54.50*400+$8.95 commission)

Net Profit:
(a) Options Income: +1,004.25
= (400*($3.00-$5.84+$2.51-$6.15+$2.89+$2.85+$3.40) - 5*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $65.00): +$3,711.05
= ($63.80-$54.50)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $65.00): +$4,191.05
= ($65.00-$54.50)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $63.80): +$4,715.30
= (+$1,004.25 +$0.00 +$3,711.05)
Total Net Profit(If stock price exercised at $65.00): +$5,196.30
= (+$1,004.25 +$0.00 +$4,191.05)

Absolute Return if Stock Price Unchanged at $63.80: +21.6%
= +$4,715.30/$21,808.95
Annualized Return If Stock Price Unchanged (ARIU): +83.1%
= (+$4,715.30/$21,808.95)*(365/95 days)

Absolute Return if Exercised at $65.00: +23.8%
= +$5,196.30/$21,808.95
Annualized Return If Exercised (ARIE) +91.5%
= (+$5,196.30/$21,808.95)*(365/95 days)

Bank of America Corp (BAC) -- Closed

The Covered Calls Advisor Portfolio (CCAP) covered calls position in Bank of America(BAC) was closed out today (7/20/09).

The transactions history was as follows:
06/30/09 Bought 1000 BAC @ $13.25
06/30/09 Sold 10 BAC Jul09 $13.00 Calls @ $.82
07/18/09 Jul09 Options Expired
07/20/09 Sold 1000 BAC @ $12.615

The overall performance results(including commissions) for the BAC transactions are as follows:
Stock Purchase Cost: $13,258.95
($13.25*1000+$8.95 commission)

Net Profit:
(a) Options Income: +$803.55 (1000*$.82 - $16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$643.95
= ($12.615-$13.25)*1000 - $8.95 commissions

Total Net Profit: +$159.60
= (+$803.55 +$0.00 -$643.95)

Absolute Return = +1.2%
= +$159.60/$13,258.95

Annualized Return: +22.0%
= (+$159.60/$13,258.95)*(365/20 days)

Saturday, July 18, 2009

July 2009 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of nine positions with July 2009 expirations, with the following results:
- Four positions (ENDP, FDO, FXI, and IWM) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for the four exercised positions were:

Endo Pharmaceuticals Holdings Inc (ENDP): +31.7%
Family Dollar Stores Inc (FDO): +46.8%
iShares MSCI China Fund ETF (FXI): +85.3%
iShares MSCI Russell 2000 Small Cap Index ETF (IWM): +28.6%

- Five positions in the CCAP (BAC,CHL,EME,SOHU,and UNG) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Aug09 covered call positions. The related transactions will be made during the next few days and the actual transactions will be posted on this blog site on the same day they occur.

Detailed results for the four positions that were assigned (called away) upon Jul09 expiration are as follows:

1. Endo Pharmaceutical Holdings Inc(ENDP) -- Closed
The transactions history for the ENDP covered calls was:
04/21/09 Bought 500 ENDP @ $17.61
04/21/09 Sold 5 ENDP May09 $17.50 Calls @ $.85
05/16/09 May09 Options Expired
Note: The closing price of ENDP was $15.83 on expiration Friday.
05/20/09 Sell-to-Open (STO) 5 ENDP Jul09 $17.50 @ $.55
Note: The price of ENDP was $16.72 today when the call options were sold.
07/18/09 Jul09 Options Exercised (500 shares of ENDP called away)
Note: Closing price of ENDP was $18.16 on expiration Friday.


The overall performance results(including commissions) for the ENDP transactions was as follows:
Stock Purchase Cost: $8,813.95
($17.61*500+$8.95 commission)

Net Profit:
(a) Options Income: +$674.60 [500*($.85+$.55) - 2*$12.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $17.50): -$63.95
= ($17.50-$17.61)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $17.50): +$610.65
= (+$674.60 +$0.00 -$63.95)

Absolute Return: +7.7%
= +$674.60/$14,693.95
Annualized Return: +31.7%
= (+$674.60/$14,693.95)*(365/88 days)

2. Family Dollar Stores Inc(FDO) -- Closed
The transactions history for the FDO covered calls was:
06/29/09 Bought 500 FDO @ $28.68
06/29/09 Sold 5 FDO Jul09 $27.50 Calls @ $1.88
07/18/09 Jul09 Options Exercised (500 shares of FDO called away)
Note: Closing price of FDO was $30.73 on expiration Friday.

The overall performance results(including commissions) for the FDO transactions was as follows:
Stock Purchase Cost: $14,348.95
($28.68*500+$8.95 commission)

Net Profit:
(a) Options Income: +$927.30 (500*$1.88 - $12.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $27.50): -$598.95
= ($27.50-$28.68)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $27.50): +$328.35
= (+$927.30 +$0.00 -$598.95)

Absolute Return (Stock Exercised at $27.50): +2.4%
= [($1.88-($28.68-$27.50)]/$28.68
Annualized Return: +46.8%
= [($1.88-($28.68-$27.50))/$28.68]*(365/19 days)

3. iShares MSCI China Fund ETF(FXI) -- Closed
The transactions history for the FXI covered calls was:
06/22/09 Bought 1200 FXI @ $36.14
06/22/09 Sold 12 FXI Jul09 $37.00 Calls @ $1.40
07/18/09 Jul09 Options Exercised (1200 shares of FXI called away)
Note: Closing price of FXI was $39.34 on expiration Friday.

The overall performance results(including commissions) for the FXI transactions was as follows:
Stock Purchase Cost: $43,376.95
($36.14*1200+$8.95 commission)

Net Profit:
(a) Options Income: +$1,662.05 (1200*$1.40 - $17.95 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $37.00): +$975.05
= ($37.00-$36.18)*1200 - $8.95 commissions

Total Net Profit(Stock exercised at $37.00): +$2,637.10
= (+$1,662.05 +$0.00 +$975.05)

Absolute Return (Stock Exercised at $37.00): +6.1%
= ($2,637.10/$43,376.95)
Annualized Return: +85.3%
= ($2,637.10/$43,376.95)*(365/26 days)

4. iShares MSCI Russell 2000 Small Cap Index Fund ETF(IWM) -- Closed
The transactions history for the FXI covered calls was:
05/21/09 Initial Stock Purchase Transaction -- Bought 500 IWM @ $48.22
05/21/09 Inital Calls Sold Transaction -- Sold 5 IWM Jun09 $47.00 Calls @ $2.87
A roll-up debit-spread transaction was executed as follows:
06/02/09 Buy-to-Close (BTC) 5 IWM Jun09 $47s @ $6.00
06/02/09 Sell-to-Open (STO) 5 IWM Jun09 $53s @ $1.51
Note: The price of IWM was $52.83 today when the debit-spread was transacted.
06/20/09 Jun09 Options Expired
06/24/09 Sell-to-Open (STO) 5 IWM Jul09 $51s @ $1.13
The price of IWM was $50.15 today when this transaction was executed.
07/18/09 Jul09 Options Exercised (500 shares of IWM called away)
Note: Closing price of IWM was $51.90 on expiration Friday.

The overall performance results(including commissions) for the IWM transactions was as follows:
Stock Purchase Cost: $24,118.95
= ($48.22*500+$8.95 commission)

Net Profit:
(a) Options Income: -$283.10
= (500*($2.87-$6.00+$1.51+$1.13) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $51.00): +$1,381.05
= ($51.00-$48.22)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $51.00): +$1,097.95
= (-$283.10 +$0.00 +$1,381.05)

Absolute Return (Stock Exercised at $51.00): +4.6%
= +$1,097.95/$24,118.95
Annualized Return: +28.6%
= (+$1,097.95/$24,118.95)*(365/58 days)

Sunday, July 5, 2009

Warren Buffett -- "The Best Advice I Ever Got"

Fortune magazine is presenting a series from several famous people called "The Best Advice I Ever Got." Fortunately, they were able to ask this question to Warren Buffett, who many believe is the top stock market investor ever. Since acquiring Berkshire Hathaway in 1965, Buffett's annual return-on-investment has approximated an amazing 20% versus the 9% average of the S&P 500.

So what would you think he would say was "the best advice I ever got"?
It occurred when he was 19 years old when he read "The Intelligent Investor" by Benjamin Graham. He refers us specifically to Chapter 8, "The Investor and Market Fluctuations"; and Chapter 20, "Margin of Safety as the Central Concept of Investment". It is fascinating to me how great minds process complex information -- they understand the myriad details, but their true genius lies in their ability to synthesize that complexity down to some essential, basic truths. In short, they can see the big picture when most people get bogged down with the details. Said another way, they see the forest when others only see some of the trees. When it comes to investing, Buffett certainly qualifies as a genius.

From these two chapters, Buffet's "best advice" is to "take the emotion out of investing and simply stick with good businesses." He explains that people "get all excited when stocks have gone up recently and they get depressed when they go down". You might recall from my "Investing Pyramid of Success" article (link) that 'emotional maturity' is one of the cornerstones of the pyramid, and to "take the emotion out of investing" is a key component of emotional maturity.

Taken within the context of Buffett's comments, re-reading chapters 8 and 20 of "The Intelligent Investor" has been a very rewarding experience. Some of the key topics include market timing and pricing, not following the crowd, how to view "Mr Market", margin of safety, and the four business principles of investing. Needless to say, I highly recommend that you obtain this book and carefully read these two chapters. Concentrate on all the details, but remain focused on Buffett's big-picture advice and seek to "take the emotion out of investing and simply stick with good businesses."

Regards and Godspeed to All,

Jeff

Wednesday, July 1, 2009

Returns -- Through June 2009

1. Month of June 2009 Result:

The Covered Calls Advisor Portfolio (CCAP) performance result for the month of June 2009 highlights the benefit of being a covered calls investor during a neutral market. The Russell 3000 benchmark was virtually unchanged for the month of June, as it increased by a mere 0.11%. In comparison, the CCAP increased by 2.87% during June. The CCAP outperformance is indicative of the advantage (when compared with a basic buy-and-hold strategy) that can accrue to covered calls investors from the options income received by selling near-month calls.

2. Year-to-Date Through June 2009 Results:

The 2009 Year-to-Date results are as follows:

CCAP Absolute Return (Jan 1st through June 30th, 2009) = +26.48%
= ($252,618.63 - $199,733.10)/$199,733.10

Benchmark Russell 3000(IWV) Absolute Return (Jan 1st through June 30th,2009) = +3.60%
= ($53.87 - $52.00)/$52.00

For the first six months of 2009, the table below shows that CCAP has outperformed the Russell 3000 benchmark by 22.88 percentage points (26.48% - 3.60%):





"Stick with Covered Calls"!







3. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) was begun in September, 2007. The annualized returns achieved for 2007 and 2008 compared with the Russell 3000 benchmark results were as follows:








Note: This Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. A simple example demonstrates how it is calculated:
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100.

Regards and Godspeed,

Jeff