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Monday, December 27, 2010

Establish Intel Corp. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Intel Corp.(INTC) covered calls as follows:

Established Intel Corp.(INTC) Covered Calls for Jan2011 as follows:
12/27/2010 Bought 300 INTC @ $20.71
12/27/2010 Sell-to-Open(STO) 3 INTC Jan2011 $21.00 CallS @ $.40
Note: The price of INTC was $20.78 today when these options were sold.

Intel Corp.(INTC) is the world's leading semiconductor producer and has been the industry leader since the inception of the personal computer. Intel produces products for many facets of advanced technology including flash memory products, motherboards, wired and wireless connectivity products and networked storage products. Its 2009 annual sales exceeded $35 billion and should approximate $40 billion this year. This sales increase coupled with an operating margin above 60% should enable Intel to achieve all-time record earnings per share of approximately $2.00 this year. Applying a P/E of 13 (historically low for Intel) against these earnings implies a very reasonable target price potential of $26, which represents an attractive 25% annualized return potential for the underlying stock over the next year.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 18.10 is well above the desired threshold of 16.0 points for a new investment.






















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


Two possible overall performance results(including commissions) for the INTC transactions would be as follows:
Stock Purchase Cost: $6,221.95
= ($20.71*300+$8.95 commission)

Net Profit:
(a) Options Income: +$108.80
= 300*$.40 - $11.20 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $20.71):
-$8.95 = ($20.71-$20.71)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $21.00): +$78.05
= ($21.00-$20.71)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.71): +$99.85
= (+$108.80 +$0.00 -$8.95)
Total Net Profit(If stock price assigned at $21.00): +$186.85
= (+$108.80 +$0.00 +$78.05)

Absolute Return if Unchanged at $20.71: +1.6%
= +$99.85/$6,221.95
Annualized Return If Unchanged (ARIU): +22.5%
= (+$99.85/$6,221.95)*(365/26 days)

Absolute Return if Assigned at $21.00: +3.0%
= +$186.85/$6,221.95
Annualized Return If Assigned (ARIA): +42.2%
= (+$186.85/$6,221.95)*(365/26 days)

Wednesday, December 22, 2010

Establish UnitedHealth Group Inc. Covered Calls

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

Established UnitedHealth Group Inc.(UNH) Covered Calls for Jan2011 as follows:
12/22/2010 Bought 300 UNH @ $35.55
12/22/2010 Sell-to-Open(STO) 3 UNH Jan2011 $35.00 CallS @ $1.38

UNH is a very large U.S. managed healthcare company. It is rated a 'Buy' by each of the investment advisory services preferred by the Covered Calls Advisor, namely Schwab Equity Ratings and MarketGrader.com. Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for UNH. It scored well above the Buy threshold of 16.0 with a Total Points rating of 19.03. At its current price of $35.55, UNH provides a reasonable entry point for this value-oriented investor.





















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

A possible overall performance result(including commissions) for the UNH transactions would be as follows:
Stock Purchase Cost: $10,673.95
= ($35.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$402.80
= (300*$1.38 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock assigned at $35.00): -$173.95
= ($35.00-$35.55)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $35.00): +$228.85
= (+$402.80 +$0.00 -$173.95)

Absolute Return if Assigned at $35.00: +2.1%
= +$228.95/$10,673.95
Annualized Return If Assigned (ARIA): +25.2%
= (+$228.95/$10,673.95)*(365/31 days)

Research in Motion Ltd.(RIMM) -- Continuation Transaction

This past Friday was expiration Friday for December 2010 options. In the Covered Calls Advisor's Dec2010 options expiration blog post, it was noted that of the eleven covered calls positions with Dec2010 expirations, four positions ended out-of-the-money. Yesterday, a decision was made to retain three of these four positions [Domtar Corp.(UFS), iShares MSCI Emerging Markets ETF (EEM), and Petrobras(PBR)] and to establish Jan2011 covered calls positions. Today, a decision was made to retain the one remaining stock (Research in Motion) and to establish a Jan2011 covered calls position against the 300 shares. The detailed transactions history for this position since its inception as well as a possible result for this investment is as follows:

1. Research in Motion LTD.(RIMM) -- Continuation
The transactions history is as follows:
09/23/2010 Bought 300 RIMM @ $46.55
09/23/2010 Sold 3 RIMM Oct2010 $47.50 Calls @ $1.64
10/13/2010 Buy-to-Close (BTC) 3 RIMM Oct2010 $47.50 Call Options @ $2.60
10/13/2010 Sell-to-Open (STO) 3 RIMM Nov2010 $50.00 Call Options @ $2.44
11/16/2010 Buy-to-Close (BTC) 3 RIMM Nov2010 $50.00 Call Options @ $6.15
11/16/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $57.50 Call Options @ $3.05
12/06/2010 Buy-to-Close (BTC) 3 RIMM Dec2010 $57.50 Call Options @ $6.60
12/06/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $62.50 Call Options @ $3.20
12/18/2010 Dec2010 Options Expired
Note: The price of RIMM was $60.20 upon Dec2010 options expiration.
12/21/2010 Sold 3 RIMM Jan2011 $57.50 Calls @ $2.60
Note: The price of RIMM was $58.44 when these options were sold.

A possible performance result(including commissions) for these Research In Motion Ltd.(RIMM) transactions would be as follows:
Stock Purchase Cost: $13,973.95
= ($46.55*300+$8.95 commission)

Net Profit:
(a) Options Income: -$804.40
= 300*($1.64-$2.60+$2.44-$6.15+$3.05-$6.60+$3.20+$2.60) - 7*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $57.50): +$3,276.05
= ($57.50-$46.55)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $62.50): +$2,471.65
= (-$804.40 +$0.00 +$3,276.05)

Absolute Return if Assigned at $57.50: +17.7%
= +$2,471.65/$13,973.95
Annualized Return If Assigned (ARIA): +53.4%
= (+$2,471.65/$13,973.95)*(365/121 days)

Tuesday, December 21, 2010

Domtar Corp.(UFS), iShares MSCI Emerging Markets ETF (EEM), and Petrobras (PBR) -- Continuation Transactions

This past Friday was expiration Friday for December 2010 options. In the Covered Calls Advisor's Dec2010 options expiration blog post, it was noted that of the eleven covered calls positions with Dec2010 expirations, four positions ended out-of-the-money. Today, a decision was made to retain the shares in three of these four positions [Domtar Corp.(UFS), iShares MSCI Emerging Markets ETF (EEM), and Petrobras(PBR)] and to establish Jan2011 covered calls positions. The detailed transactions history for each position as well as some possible results for each of these investments are as follows:

1. Domtar Corp.(UFS) -- Continuation
The transactions history is as follows:
11/22/2010 Bought 300 UFS @ $78.20
11/22/2010 Sold 3 UFS Dec2010 $80.00 Calls @ $2.35
12/18/2010 Dec2010 Options Expired
Note: The price of UFS was $76.16 upon Dec2010 options expiration.
12/21/2010 Sold 3 UFS Jan2011 $80.00 Calls @ $1.85
Note: The price of UFS was $77.94 when these options were sold.

Two possible overall performance results(including commissions) for the Domtar Corp.(UFS)
transactions would be as follows:
Stock Purchase Cost: $23,468.95
= ($78.20*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,237.60
= (300*($2.35+$1.85) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UFS unchanged at $77.94): $-86.95
= ($77.94-$78.20)*300 - $8.95 commissions
(c) Capital Appreciation (If UFS assigned at $80.00): +$531.05
= ($80.00-$78.20)*300 - $8.95 commissions

Total Net Profit(If UFS price unchanged at $77.94): +$1,150.65
= (+$1,237.60 +$0.00 -$86.95)
Total Net Profit(If UFS assigned at $80.00): +$1,768.65
= (+$1,237.60 +$0.00 +$531.05)

Absolute Return (If UFS unchanged at $77.94): +4.9%
= +$1,150.65/$23,468.95
Annualized Return If Unchanged (ARIU): +29.3%
= (+$684.85/$23,468.95)*(365/61 days)

Absolute Return if Stock Assigned at $80.00: +45.1%
= +$1,768.65/$23,468.95
Annualized Return If Assigned (ARIA): +73.3%
= (+$1,768.65/$23,468.95)*(365/61 days)


2. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
10/27/2010 Bought 300 EEM @ $45.55
10/27/2010 Sold 3 EEM Nov2010 $46.00 Calls @ $.99
11/19/2010 Buy-to-Close (BTC) 3 EEM Nov2010 $46.00 Call Options @ $.38
11/19/2010 Sell-to-Open (STO) 3 EEM Dec2010 $47.00 Call Options @ $1.02
12/18/2010 Dec2010 Options Expired
Note: The price of EEM was $46.40 upon Dec2010 options expiration.
12/21/2010 Sold 3 EEM Jan2011 $47.00 Calls @ $.77
Note: The price of EEM was $46.43 when these options were sold.
12/21/2010 Distribution Income $107.83 = $.35942 * 300 shares
12/29/2010 Distribution Income $7.54 = $.02512 * 300 shares

Two possible overall performance results(including commissions) for the EEM transactions would be as follows:
Stock Purchase Cost: $13,673.95
= ($45.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$686.40
= (300*($.99-$.38+$1.02+$.77) - 3*$11.20 commissions)
(b) Distribution Income: +$115.37 = $107.83 + $7.54
(c) Capital Appreciation (If EEM price unchanged at $46.43):
+$255.05 = ($46.43-$45.55)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$426.05
= ($47.00-$45.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.43): +$1,056.82
= (+$686.40 +$115.37 +$255.05)
Total Net Profit(If stock assigned at $47.00): +$1,227.81
= (+$686.40 +$115.37 +$426.05)

Absolute Return if Unchanged at $46.43: +7.7%
= +$1,056.82/$13,673.95
Annualized Return If Unchanged (ARIU): +32.4%
= (+$1,056.82/$13,673.95)*(365/87 days)

Absolute Return if Assigned at $47.00: +9.0%
= +$1,227.81/$13,673.95
Annualized Return If Assigned (ARIA): +37.7%
= (+$1,227.81/$13,673.95)*(365/87 days)


3. Petrobras (PBR) -- Continuation
The transactions history is as follows:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 today when these options were sold.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/03/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.
12/07/2010 $41.42 Dividend = ($.138 Net Dividend x 300 shares)
12/18/2010 Dec2010 Options Expired
Note: The price of PBR was $34.08 upon Dec2010 options expiration.
12/21/2010 Sold 3 PBR Jan2011 $35.00 Calls @ $.59
Note: The price of PBR was $34.18 when these options were sold.
01/06/2011 $61.03 Dividend = ($.203 Net Dividend x 300 shares)



Two possible overall performance results(including commissions) for the Petrobras (PBR) transactions would be as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,289.60
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590) - 7*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR unchanged at $34.18): $-1,556.95
= ($34.18-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $35.00): -$1,310.95
= ($35.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $34.18): -$80.75
= (+$1,289.60 +$186.60 -$1,556.95)
Total Net Profit(If PBR assigned at $35.00): +$165.25
= (+$1,289.60 +$186.60 -$1,310.95)

Absolute Return (If PBR unchanged at $33.05): -0.7%
= -$80.75/$11,810.95
Annualized Return If Unchanged (ARIU): -1.2%
= (-$80.75/$11,810.95)*(365/215 days)

Absolute Return (If Assigned at $35.00): +1.4%
= +$165.25/$11,810.95
Annualized Return If Assigned: +2.4%
= (+$165.25/$11,810.95)*(365/215 days)

Establish Apple Inc.(AAPL) Covered Call

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of an Apple Inc.(AAPL) covered call as follows:

Established Apple Inc.(AAPL) Covered Call for Jan2011:
12/20/2010 Bought 100 AAPL @ $321.10
12/21/2010 Sold 1 AAPL Jan2011 $330.00 Call @ $6.10
Note: The call option was sold today when the AAPL stock was trading at $324.10.

Apple Inc. designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players, as well as sells various related software, services, peripherals, and networking solutions.
The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells various third-party Macintosh, iPhone, and iPod and now iPad compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative customers. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.

Apple is hitting on all cylinders with its: (1) ongoing growth of Macs, iPods, and iTunes; (2) accelerating growth in iPads and iPad applications; and (3) exciting new initiative with Apple TV.

Some possible overall performance results(including commissions) for the AAPL transactions would be as follows:
Stock Purchase Cost: $32,118.95
= ($321.10*100+$8.95 commission)

Net Profit:
(a) Options Income: +$600.30
= (100*$6.10 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $321.10):
-$8.95 = ($321.10-$321.10)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $330.00): +$881.05
= ($330.00-$321.10)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $321.10): +$591.35
= (+$600.30 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $330.00): +$1,481.35
= (+$600.30 +$0.00 +$881.05)

Absolute Return if Unchanged at $321.10: +20.4%
= +$591.35/$32,118.95
Annualized Return If Unchanged (ARIU) +10.6%
= (+$591.35/$32,118.95)*(365/33 days)

Absolute Return if Assigned at $330.00: +4.6%
= +$1,481.35/$32,118.95
Annualized Return If Assigned (ARIA): +51.0%
= (+$1,481.35/$32,118.95)*(365/33 days)

Sunday, December 19, 2010

December 2010 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of eleven covered calls positions with December 2010 expirations, with the following results:

- Decisions were made earlier this month to roll out five covered calls positions (iShares MSCI South Korea ETF, Microsoft, International Paper, Bank of America, and iShares MSCI China ETF) into Jan2011 positions. Separate posts were made on this blog earlier this month for each of these transactions on the day they occurred.

Of the remaining six positions that were held until Dec2010 expiration this past Friday:

- Two positions (Intel Corp. and Oshkosh Corp.) finished in-the-money. The calls were exercised and the shares were called away. The annualized return-on-investment results achieved on these assigned positions were as follows:

1. Intel Corp. -- +42.7%

2. Oshkosh Corp. -- +56.5%

Detailed results for these two covered calls positions that were assigned (called away) upon Dec2010 expiration are described below.

- The remaining four positions in the CCAP (Domtar Corp., iShares MSCI Emerging Markets ETF, Petrobras, and Research in Motion) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Jan2011 covered call positions. The related transactions will be made this week and the actual transactions will be posted on this blog site on the same day they occur.

The overall performance results for the two assigned Dec2010 covered calls positions were as follows:

1. Intel Corp.(INTC) -- Closed
The transactions history to date for Intel Corp.(INTC) is as follows:
10/20/2010 Bought 300 INTC @ $19.45
10/20/2010 Sold 3 INTC Nov2010 $20.00 Call Options @ $.21
11/03/2010 Ex-Dividend of $47.25 = ($.1575 * 300 shares)
11/16/2010 Buy-to-Close (BTC) 3 INTC Nov2010 $20.00 Call Options @ $1.03
11/16/2010 Sell-to-Open (STO) 3 INTC Dec2010 $21.00 Call Options @ $.60
12/18/2010 Dec2010 Options Expired
Note: The closing price of INTC was $21.46 on expiration Friday.

The overall performance result(including commissions) for these INTC transactions was as follows:
Stock Purchase Cost: $5,843.95
= ($19.45*300+$8.95 commission)

Net Profit:
(a) Options Income: -$99.60
= 300*($.21-$1.03+$.60) - 3*$11.20 commissions
(b) Dividend Income: +$47.25 = ($.1575*300 shares) ex-div on 11/3/2010
(c) Capital Appreciation (Stock assigned at $21.00): +$456.05
= ($21.00-$19.45)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $21.00): +$403.70
= (-$99.60 +$47.25 +$456.05)

Absolute Return (Stock Assigned at $21.00): +6.9%
= +$403.70/$5,843.95
Annualized Return: +42.7%
= (+$403.70/$5,843.95)*(365/59 days)

2. Oshkosh Corp.(OSK) -- Closed
The transactions history to date for Oshkosh Corp.(OSK) is as follows:
09/27/2010 Bought 300 OSK @ $26.46
09/27/2010 Sold 3 OSK Oct2010 $27.00 Calls @ $.80
10/08/2010 Buy-to-Close (BTC) 3 OSK Oct2010 $27.00 Call Options @ $3.10
10/08/2010 Sell-to-Open (STO) 3 OSK Nov2010 $30.00 Call Options @ $1.70
11/20/2010 Nov2010 Options Expired
Note: The closing price of OSK was $29.16 on expiration Friday.
11/26/2010 Sold 3 IP Dec2010 $30.00 Calls @ $.70
Note: The price of IP was $29.33 when the call options were sold.
12/18/2010 Dec2010 Options Expired
Note: The closing price of OSK was $34.42 on expiration Friday.

The overall performance result(including commissions) for the Oshkosh Corp.(OSK) transactions was as follows:
Stock Purchase Cost: $7,946.95
= ($26.46*300+$8.95 commission)

Net Profit:
(a) Options Income: -$44.80
= (300*($.80-$3.10+$1.70+$.70) - 4*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $30.00): +$1,053.05
= ($30.00-$26.46)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $30.00): +$1,008.25
= (-$44.80 +$0.00 +$1,053.05)

Absolute Return (Stock Assigned at $30.00): +12.7%
= +$1,008.25/$7,946.95
Annualized Return If Assigned (ARIA): +56.5%
= (+$1,008.25/$7,946.95)*(365/82 days)

Wednesday, December 15, 2010

Roll Up and Out -- iShares MSCI South Korea ETF (EWY) Covered Calls

Today, with the three iShares MSCI South Korea ETF (EWY) Dec2010 $55.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Jan2011 expiration at the $59.00 strike price. The three Dec2010 $55.00 calls were bought back for $3.05 (only $.03 of time value remaining in each call option) and replaced by selling three out-of-the-money Jan2011 $59.00 strike options at $1.43 as follows:
12/15/2010 Buy-to-Close (BTC) 3 EWY Dec2010 $55.00 Call Options @ $3.05
12/15/2010 Sell-to-Open (STO) 3 EWY Jan2011 $59.00 Call Options @ $1.43
The price of EWY was $58.02 today when this debit-spread transaction was made.

The overall transactions history as well as two possible return-on-investment results are detailed below:

1. iShares MSCI South Korea ETF (EWY) -- Continuation Transaction
The transactions history to date for iShares MSCI South Korea ETF (EWY) is as follows:
11/26/2010 Bought 300 EWY @ $53.67
11/26/2010 Sold 3 EWY Dec2010 $55.00 Calls @ $1.18
12/15/2010 Buy-to-Close (BTC) 3 EWY Dec2010 $55.00 Call Options @ $3.05
12/15/2010 Sell-to-Open (STO) 3 EWY Jan2011 $59.00 Call Options @ $1.43
12/21/2010 Income Distribution $50.73 = $.16910 * 300 shares

Two possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $16,109.95
= ($53.67*300+$8.95 commission)

Net Profit:
(a) Options Income: -$154.40
= [300*($1.18-$3.05+$1.43) - 2*$11.20 commissions]
(b) Distribution Income: +$50.73 = $.16910 * 300 shares
(c) Capital Appreciation (If EWY unchanged at $58.02): +$1,296.05
= ($58.02-$53.67)*300 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $59.00): +$1,590.05
= ($59.00-$53.67)*300 - $8.95 commissions

Total Net Profit(If EWY price unchanged at $58.02): +$1,192.38
= (-$154.40 +$50.73 +$1,296.05)
Total Net Profit(If EWY assigned at $59.00): +$1,486.38
= (-$154.40 +$50.73 +$1,590.05)

Absolute Return (If EWY unchanged at $58.02): +7.4%
= +$1,192.38/$16,109.95
Annualized Return If Unchanged (ARIU): +47.4%
= (+$1,192.38/$16,109.95)*(365/57 days)

Absolute Return if Exercised at $59.00: +9.2%
= +$1,486.38/$16,109.95
Annualized Return If Exercised (ARIE): +59.1%
= (+$1,486.38/$16,109.95)*(365/57 days)

Change from Slightly Bullish to Neutral

Each month during options expiration week, the Covered Calls Advisor re-calculates each of the current values for the nine factors used to determine the "Overall Market Meter" rating. Today the indicator has changed from its prior Slightly Bullish rating to a current rating of Neutral.

The indicator has been Slightly Bullish for just over a year -- since Dec. 6th, 2009. During these past twelve months, the overall stock market has been very volatile with alternating short-term bearish and bullish price swings. But overall, the benchmark Russell 3000 Index has been in a moderate uptrend with an increase of +16.9% during this period.

As shown in the chart below, the new Overall Market Meter average rating (blue bar at the bottom of the chart) is now Neutral:
















The current Market Meter Average of 3.33 is lower than the 3.56 of last month, and as such changes from the Slightly Bullish range (between 3.5 and 4.5) to the Neutral range (2.5 to 3.5) for establishing covered calls investing positions for the next options expiration month of January 2011. Of the nine factors used, seven remained unchanged from last month. The two indicators that changed were:
(1) Earnings-to-Bond-Yield Spread -- from Bullish to Slightly Bullish; and
(2) P/E Ratios -- from Neutral to Slightly Bearish

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the nearest expiration month." Thus, new positions for Jan2011 options expiration will be established in accordance with this guideline.

For a more detailed explanation of each of the Covered Calls Advisor's nine indicators, please refer to this prior blog post on that topic -- link. These nine factors can be categorized into macroeconomic (the first 3 indicators in the chart above), momentum (next 2 indicators in the chart), value (next 3 indicators), and growth (the last indicator).

The Covered Calls Advisor is currently tracking two additional factors: (1) The Conference Board's Leading Economic Index; and (2) Estimated Future Inflation -- three sub-factors being tracked here are the money multiplier, the velocity of money, and capacity utilization. A decision on whether or not to add these two factors into the Overall Market Meter rating system will be made within the next several months.

Your comments or questions/clarifications regarding this post are welcomed.
Please click on the "comments" link below. If you prefer to remain anonymous, email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Tuesday, December 14, 2010

Roll Up and Out -- Microsoft Corp.(MSFT) Covered Calls

Today, with the five Microsoft Corp.(MSFT) Dec2010 $26.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Jan2011 expiration at the $27.50 strike price. The five Dec2010 $26.00 calls were bought back for $1.43 (only $.02 of time value remaining in each call option) and replaced by selling five slightly-out-of-the-money Jan2011 $27.50 strike options at $.70 as follows:
12/14/2010 Buy-to-Close (BTC) 5 MSFT Dec2010 $26.00 Call Options @ $1.43
12/14/2010 Sell-to-Open (STO) 5 MSFT Jan2011 $27.50 Call Options @ $.70
The price of MSFT was $27.41 today when this debit-spread transaction was made.

The overall transactions history as well as two possible return-on-investment results are detailed below:

1. Microsoft Corporation (MSFT) -- Continuation Transaction
The transactions history to date for Microsoft Corporation (MSFT) is as follows:
07/23/2010 Bought 500 MSFT @ $25.47
07/23/2010 Sold 5 MSFT Aug2010 $26.00 Calls @ $.44
08/17/2010 Ex-Dividend $65.00 = $.13 * 500 shares
08/21/2010 Aug2010 Options Expired
Note: The closing price of MSFT was $24.23 on expiration Friday.
09/03/2010 Sold 5 MSFT Oct2010 $25.00 Call Options @ $.49
Note: The price of MSFT was $24.31 today when these options were sold.
10/15/2010 Buy-to-Close (BTC) 5 MSFT Oct2010 $25.00 Call Options @ $.32
10/15/2010 Sell-to-Open (STO) 5 MSFT Nov2010 $26.00 Call Options @ $.47
11/16/2010 Ex-Dividend $80.00 = $.16 * 500 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of MSFT was $25.69 on expiration Friday.
12/01/2010 Sell-to-Open (STO) 5 MSFT Dec2010 $26.00 Call Options @ $.44
Note: The price of MSFT was $25.95 today when these options were sold.
12/14/2010 Buy-to-Close (BTC) 5 MSFT Dec2010 $26.00 Call Options @ $1.43
12/14/2010 Sell-to-Open (STO) 5 MSFT Jan2011 $27.50 Call Options @ $.70
Note: The price of MSFT was $27.41 today when these options were sold.

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $12,743.95
= ($25.47*500+$8.95 commission)

Net Profit:
(a) Options Income: +$318.80
= (500*($.44+$.49-$.32+$.47+$.44-$1.43+$.70) - 6*$12.70 commissions)
(b) Dividend Income: +$145.00 = ($.13 * 500 shares + $.16 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $27.41):
+$961.05 = ($27.41-$25.47)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $27.50): +$1,006.05
= ($27.50-$25.47)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $27.41): +$1,424.85
= (+$318.80 +$145.00 +$961.05)
Total Net Profit(If stock assigned at $27.50): +$1,469.85
= (+$318.80 +$145.00 +$1,006.05)

Absolute Return if Unchanged at $27.41: +11.2%
= +$1,424.85/$12,743.95
Annualized Return If Unchanged (ARIU): +22.3%
= (+$1,424.85/$12,743.95)*(365/183 days)

Absolute Return if Assigned at $27.50: +11.5%
= +$1,469.85/$12,743.95
Annualized Return If Assigned (ARIA): +23.0%
= (+$1,469.85/$12,743.95)*(365/183 days)

Monday, December 13, 2010

Roll Up and Out -- International Paper Co.(IP) Covered Calls

Today is the beginning of options expiration week for Dec2010. With the three International Paper Co.(IP) Dec2010 $26.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Jan2011 expiration at the $27.00 strike price. The transactions history as well as a potential return-on-investment result are detailed below:

1. International Paper Co.(IP) -- Continuation Transaction
With International Paper Co.(IP) trading at $26.84, the three existing Dec2010 $26.00 calls were bought back for $.97 ($.13 of time value remaining in each call option) and subsequently replaced by selling three Jan2011 $27.00 strike options at $1.15 as follows:
12/13/2010 Buy-to-Close (BTC) 3 IP Dec2010 $26.00 Call Options @ $.97
12/13/2010 Sell-to-Open (STO) 3 IP Jan2011 $27.00 Call Options @ $1.15
The price of IP was $27.04 today when these call options were sold.

The transactions history to date for International Paper Co.(IP) is as follows:
11/09/2010 Bought 300 IP @ $25.82
11/09/2010 Sold 3 IP Nov2010 $25.00 Calls @ $1.05
11/19/2010 Ex-Dividend $38.25 = $.1275*300 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of IP was $24.80 on expiration Friday.
11/24/2010 Sold 3 IP Dec2010 $26.00 Calls @ $.53
Note: The price of IP was $25.40 when the call options were sold.
12/13/2010 Buy-to-Close (BTC) 3 IP Dec2010 $26.00 Call Options @ $.97
12/13/2010 Sell-to-Open (STO) 3 IP Jan2011 $27.00 Call Options @ $1.15
Note: The price of IP was $27.04 when the call options were sold.

A possible overall performance result(including commissions) for the IP transactions would be as follows:
Stock Purchase Cost: $7,754.95
= ($25.82*300+$8.95 commission)

Net Profit:
(a) Options Income: +$483.20
= (300*($1.05+$.53-$.97+$1.15) - 4*$11.20 commissions)
(b) Dividend Income): +$38.25 = ($.1275 * 300 shares) Note: Ex-Div was on 11/19/2010
(c) Capital Appreciation (If stock assigned at $27.00): +$345.05
= ($27.00-$25.82)*300 - $8.95 commissions

Total Net Profit (If stock assigned at $27.00 at Jan2011 expiration): +$866.50
= (+$483.20 +$38.25 +$345.05)

Absolute Return (If stock assigned at $27.00 at Jan2011 expiration): +11.2%
= +$866.50/$7,754.95
Annualized Return If Assigned (ARIA): +55.1%
= (+$866.50/$7,754.95)*(365/74 days)

Monday, December 6, 2010

Roll Up -- Research In Motion Ltd.(RIMM) Covered Calls

Today, with Research In Motion Ltd.(RIMM) stock priced at $63.38 and twelve days remaining until Dec2010 options expiration, the three existing Dec2010 $57.50 calls were bought back for $6.60 ($.72 of time value remaining in each call option) and then replaced by selling three in-the-money Dec2010 $62.50 strike options at $3.20 as follows:
12/06/2010 Buy-to-Close (BTC) 3 RIMM Dec2010 $57.50 Call Options @ $6.60
12/06/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $62.50 Call Options @ $3.20
The price of RIMM was $63.38 today when these transactions were executed.

This roll-up decision was made since the following two criteria established by the Covered Calls Advisor for a roll-up were satisfied:
- Roll up when the current equity price is more than 10% above the current strike price; 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.

1. Research In Motion Ltd.(RIMM) -- Continuation Transaction
The transactions history is as follows:
09/23/2010 Bought 300 RIMM @ $46.55
09/23/2010 Sold 3 RIMM Oct2010 $47.50 Calls @ $1.64
10/13/2010 Buy-to-Close (BTC) 3 RIMM Oct2010 $47.50 Call Options @ $2.60
10/13/2010 Sell-to-Open (STO) 3 RIMM Nov2010 $50.00 Call Options @ $2.44
11/16/2010 Buy-to-Close (BTC) 3 RIMM Nov2010 $50.00 Call Options @ $6.15
11/16/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $57.50 Call Options @ $3.05
12/06/2010 Buy-to-Close (BTC) 3 RIMM Dec2010 $57.50 Call Options @ $6.60
12/06/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $62.50 Call Options @ $3.20

A possible performance result(including commissions) for these Research In Motion Ltd.(RIMM) transactions would be as follows:
Stock Purchase Cost: $13,973.95
= ($46.55*300+$8.95 commission)

Net Profit:
(a) Options Income: -$1,573.20
= 300*($1.64-$2.60+$2.44-$6.15+$3.05-$6.60+$3.20) - 6*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $62.50): +$4,776.05
= ($62.50-$46.55)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $62.50): +$3,202.85
= (-$1,573.20 +$0.00 +$4,776.05)

Absolute Return if Assigned at $62.50: +22.9%
= +$3,202.85/$13,973.95
Annualized Return If Assigned (ARIA): +97.3%
= (+$3,202.85/$13,973.95)*(365/86 days)

Thursday, December 2, 2010

Bank of America (BAC) -- Continuation Transaction

Today, a decision was made to retain the 400 shares of Bank of America (BAC) and to establish a Jan2011 covered calls position. To say the least, Bank of America stock performance has been very disappointing since it was purchased in June, but the Covered Calls Advisor maintains his conviction that over the next year, BAC will increase above its book value to a price above the $16.04 original purchase price.
BAC currently trades at about one-half of its historic price/book value ratio. Additionally, Bank of America stock price catalysts in 2011 should include: an improving U.S. outlook, stronger loan growth, continuing declines in credit losses, and a gradually steeper yield curve.

The transactions history for BAC as well as some possible results for this investment is as follows:

1. Bank of America (BAC) -- Continuation
The transactions history to date for Bank of America Corp.(BAC) is as follows:
06/21/2010 Bought 400 BAC @ $16.04
06/21/2010 Sold 4 BAC Jul2010 $16.00 Calls @ $.58
07/17/2010 Jul2010 Options Expired
Note: The closing price of BAC was $13.98 on expiration Friday.
07/22/2010 Sold 4 BAC Aug2010 $14.00 Calls @ $.50
Note: The price of BAC was $13.87 today when this option was sold.
08/21/2010 Aug2010 Option Expired
Note: The closing price of BAC was $12.86 on expiration Friday.
09/01/2010 Ex-Dividend $4.00 = $.01*400 shares
09/03/2010 Sold 4 BAC Oct2010 $14.00 Call Options @ $.38
Note: The price of BAC was $13.41 today when these options were sold.
10/16/2010 Oct2010 options expired.
Note: The closing price of BAC was $11.98 on expiration Friday.
11/04/2010 Sold 4 BAC Nov2010 $12.00 Call Options @ $.26
Note: The price of BAC was $11.84 today when these options were sold.
11/20/2010 Nov2010 Options Expired
Note: The closing price of BAC was $11.65 on expiration Friday.
12/01/2010 Ex-Dividend $4.00 = $.01*400 shares
12/02/2010 Sell-to-Open (STO) 4 BAC Jan2011 $12.50 Call Options @ $.34
Note: The price of BAC was $11.59 and the implied volatility was about 39 today when these options were sold. The Jan2011 expiration was selected instead on the usual near-month (Dec2010 in this case) expiration since the option premium of $.17 was below the minimum of $.25 per contract required by the Covered Calls Advisor.

Two possible overall performance results(including commissions) for the Bank of America Corp.(BAC) transactions would be as follows:
Stock Purchase Cost: $6,424.95
= ($16.04*400+$8.95 commission)

Net Profit:
(a) Options Income: +$776.20
= (400*($.58+$.50+$.38+$.26+$.34) - 5*$11.95 commissions)
(b) Dividend Income: +$8.00 = 2x($.01*400 shares)
(c) Capital Appreciation (If stock price unchanged at $11.59): -$1,788.95
= ($11.59-$16.04)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $12.50): -$1,424.95
= ($12.50-$16.04)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $11.59): -$1,004.75
= (+$776.20 +$8.00 -$1,788.95)
Total Net Profit(If stock assigned at $12.50): -$640.75
= (+$776.20 +$8.00 -$1,424.95)

Absolute Return (If Stock unchanged at $11.59): -15.6%
= -$1,004.75/$6,424.95
Annualized Return If Unchanged (ARIU): -26.5%
= (-$1,004.75/$6,424.95)*(365/215 days)

Absolute Return if Assigned at $12.50: -10.0%
= -$640.75/$6,424.95
Annualized Return If Assigned (ARIA): -16.9%
= (-$980.75/$6,424.95)*(365/215 days)

Wednesday, December 1, 2010

iShares MSCI China ETF (FXI) -- Continuation Transaction

Today, a decision was made to retain the 1,100 shares of iShares MSCI China ETF (FXI)and to establish a Jan2011 covered calls position. The transactions history for FXI as well as some possible results for this investment is as follows:

1. iShares MSCI China ETF (FXI) -- Continuation Transaction
The transactions history is as follows:
06/21/2010 Bought 1,100 FXI @ $41.85
06/21/2010 Sold 11 FXI Jul2010 $43.00 Calls @ $.71
7/17/2010 Jul2010 Options Expired
Note: The closing price of FXI was $38.74 on expiration Friday.
07/22/2010 Sold 7 FXI Aug2010 $42.00 Calls @ $.73
07/22/2010 Sold 4 FXI Aug2010 $43.00 Calls @ $.42
Note: The price of FXI was $41.02 today when these options were sold.
08/21/2010 Aug2010 Option Expired
Note: The closing price of FXI was $40.54 on expiration Friday.
09/02/2010 Sold 11 FXI Sep2010 $42.00 Call Options @ $.20
Note: The price of FXI was $40.52 today when these options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 11 FXI Oct2010 $43.00 Call Options @ $.62
Note: The price of FXI was $42.19 today when these options were sold.
10/14/2010 Buy-to-Close (BTC) 11 FXI Oct2010 $43.00 Call Options @ $2.69
10/14/2010 Sell-to-Open (STO) 11 FXI Nov2010 $47.00 Call Options @ $.85
11/20/2010 Nov2010 Options Expired
Note: The closing price of FXI was $44.66 on expiration Friday.
12/01/2010 Sell-to-Open (STO) 11 FXI Jan2011 $47.00 Call Options @ $.63
Note: The price of FXI was $44.41 today when these options were sold.
12/20/2010 Income Distribution $186.11 = ($.16919 * 1100 shares)

Some possible overall performance results(including commissions) for the iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $46,043.95
= ($41.85*1,100+$8.95 commission)

Net Profit:
(a) Options Income: +$928.05
= (1,100*($.71+$.20+$.62-$2.69+$.85+$.63) + 700*$.73 + 400*$.40 - ($17.20*4 +$14.20 +$11.95) commissions)
(b) Distribution Income: +$186.11 = ($.16919 * 1100 shares)
(c) Capital Appreciation (If FXI unchanged at $44.66): +$3,082.05
= ($44.66-$41.85)*1,100 - $8.95 commissions
(c) Capital Appreciation (If all FXI shares are assigned at $47.00): +$5,656.05
= ($47.00-$41.85)*1,100 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $44.66): +$4,196.21
= (+$928.05 +$186.11 +$3,082.05)
Total Net Profit (If FXI assigned at $47.00): +$6,770.21
= (+$928.05 +$186.11 +$5,656.05)

Absolute Return (If FXI unchanged at $44.66): +9.1%
= +$4,196.21/$46,043.95
Annualized Return If Unchanged (ARIU): +15.5%
= (+$4,196.21/$46,043.95)*(365/215 days)

Absolute Return (If Assigned at $47.00): +14.7%
= +$6,770.21/$46,043.95
Annualized Return If Assigned (ARIA): +25.0%
= (+$6,770.21/$46,043.95)*(365/215 days)

Microsoft Corporation (MSFT) -- Continuation Transaction

Today, a decision was made to retain the 500 shares of Microsoft Corporation (MSFT) and to establish a Dec2010 covered calls position. The transactions history for MSFT as well as some possible results for this investment is as follows:

1. Microsoft Corporation (MSFT) -- Continuation Transaction
The transactions history to date for Microsoft Corporation (MSFT) is as follows:
07/23/2010 Bought 500 MSFT @ $25.47
07/23/2010 Sold 5 MSFT Aug2010 $26.00 Calls @ $.44
08/17/2010 Ex-Dividend $65.00 = $.13 * 500 shares
08/21/2010 Aug2010 Options Expired
Note: The closing price of MSFT was $24.23 on expiration Friday.
09/03/2010 Sold 5 MSFT Oct2010 $25.00 Call Options @ $.49
Note: The price of MSFT was $24.31 today when these options were sold.
10/15/2010 Buy-to-Close (BTC) 5 MSFT Oct2010 $25.00 Call Options @ $.32
10/15/2010 Sell-to-Open (STO) 5 MSFT Nov2010 $26.00 Call Options @ $.47
11/16/2010 Ex-Dividend $80.00 = $.16 * 500 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of MSFT was $25.69 on expiration Friday.
12/01/2010 Sell-to-Open (STO) 5 MSFT Dec2010 $26.00 Call Options @ $.44
Note: The price of MSFT was $25.95 today when these options were sold.

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $12,743.95
= ($25.47*500+$8.95 commission)

Net Profit:
(a) Options Income: +$696.50
= (500*($.44+$.49-$.32+$.47+$.44) - 5*$12.70 commissions)
(b) Dividend Income: +$145.00 = ($.13 * 500 shares + $.16 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $25.95):
+$231.05 = ($25.95-$25.47)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $26.00): +$256.05
= ($26.00-$25.47)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.95): +$1,072.55
= (+$696.50 +$145.00 +$231.05)
Total Net Profit(If stock assigned at $26.00): +$1,097.55
= (+$696.50 +$145.00 +$256.05)

Absolute Return if Unchanged at $25.95: +8.4%
= +$1,072.55/$12,743.95
Annualized Return If Unchanged (ARIU): +20.8%
= (+$1,072.55/$12,743.95)*(365/148 days)

Absolute Return if Assigned at $26.00: +8.6%
= +$1,097.55/$12,743.95
Annualized Return If Assigned (ARIA): +21.2%
= (+$1,097.55/$12,743.95)*(365/148 days)

Petrobras (PBR) -- Continuation Transaction

Today, a decision was made to retain the 300 shares of Petrobras (PBR) and to establish a Dec2010 covered calls position. The transactions history for PBR as well as some possible results for this investment is as follows:

1. Petrobras (PBR) -- Continuation
The transactions history is as follows:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 today when these options were sold.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.


Two possible overall performance results(including commissions) for the Petrobras (PBR) transactions would be as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,123.80
= (300*($1.05+$.55+$.58+$.63+$.62+$.54) - 6*$11.20 commissions)
(b) Dividend Income: +$57.90 ($.193 * 300 shares) Net Ex-Dividend on 8/2/2010
(c) Capital Appreciation (If PBR unchanged at $33.05): $-1,892.95
= ($33.06-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $34.00): -$1,610.95
= ($34.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $33.05): -$711.25
= (+$1,123.80 +$57.90 -$1,892.95)
Total Net Profit(If PBR assigned at $34.00): -$429.25
= (+$1,123.80 +$57.90 -$1,610.95)

Absolute Return (If PBR unchanged at $33.05): -6.0%
= -$711.25/$11,810.95
Annualized Return If Unchanged (ARIU): -12.2%
= (-$711.25/$11,810.95)*(365/180 days)

Absolute Return (If Assigned at $34.00): -3.6%
= -$429.25/$11,810.95
Annualized Return If Assigned: -7.4%
= (-$429.25/$11,810.95)*(365/180 days)

Tuesday, November 30, 2010

Returns -- Through November 2010

1. November 2010 Year-to-Date Results:

As shown in the table below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the Russell 3000 benchmark by 8.00 percentage points [+7.86-(-.14%)] so far in 2010:

















CCAP Absolute Return (Jan 1st through November 30th, 2010) = -0.14%
($275,106.21-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through November 30th, 2010) = +7.86%
($70.41-$65.28)/$65.28


2. Prior Years Results:
The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved for 2007, 2008, and 2009 compared with the Russell 3000 benchmark results were as follows:











As a reminder, the Covered Calls Advisor Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all positions in the CCAP are also held in the personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

The Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined:
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.

If you have any comments or questions, please feel free to submit them -- they are always welcomed. Click the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site.

Regards and Godspeed,
Jeff

Friday, November 26, 2010

Oshkosh Corp.(OSK) -- Continuation Transaction

The Covered Calls Advisor initially established an Oct2010 covered calls position in Oshkosh Corp.(OSK). This position was subsequently rolled-up-and-out to a Nov2010 covered calls position, and this position expired last Friday out-of-the-money. Today, a decision was made to retain the 300 shares of Oshkosh Corp.(OSK) and to establish a Dec2010 covered calls position. The transactions history for OSK as well as some possible results for this investment is as follows:

1. Oshkosh Corp.(OSK) -- Continuation
The transactions history to date for Oshkosh Corp.(OSK) is as follows:
09/27/2010 Bought 300 OSK @ $26.46
09/27/2010 Sold 3 OSK Oct2010 $27.00 Calls @ $.80
10/08/2010 Buy-to-Close (BTC) 3 OSK Oct2010 $27.00 Call Options @ $3.10
10/08/2010 Sell-to-Open (STO) 3 OSK Nov2010 $30.00 Call Options @ $1.70
11/20/2010 Nov2010 Options Expired
Note: The closing price of OSK was $29.16 on expiration Friday.
11/26/2010 Sold 3 IP Dec2010 $30.00 Calls @ $.70
Note: The price of IP was $29.33 when the call options were sold.

Two possible overall performance results(including commissions) for the Oshkosh Corp.(OSK) transactions would be as follows:
Stock Purchase Cost: $7,946.95
= ($26.46*300+$8.95 commission)

Net Profit:
(a) Options Income: -$44.80
= (300*($.80-$3.10+$1.70+$.70) - 4*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.33): +$852.05
= ($29.33-$26.46)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $30.00): +$1,053.05
= ($30.00-$26.46)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.33): +$807.25
= (-$44.80 +$0.00 +$852.05)
Total Net Profit(If stock price assigned at $30.00): +$1,008.25
= (-$44.80 +$0.00 +$1,053.05)

Absolute Return if Stock Price Unchanged at $29.33: +10.6%
= +$839.45/$7,946.95
Annualized Return If Unchanged (ARIU): +47.0%
= (+$839.45/$7,946.95)*(365/82 days)

Absolute Return if Assigned at $30.00: +12.7%
= +$1,008.25/$7,946.95
Annualized Return If Assigned (ARIA): +56.5%
= (+$1,008.25/$7,946.95)*(365/82 days)

Establish iShares MSCI South Korea ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI South Korea ETF (EWY) covered calls as follows:
Established iShares MSCI South Korea ETF (EWY) Covered Calls for Dec2010:
11/26/2010 Bought 300 EWY @ $53.67
11/26/2010 Sold 3 EWY Dec2010 $55.00 Calls @ $1.18

Two possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $16,109.95
= ($53.67*300+$8.95 commission)

Net Profit:
(a) Options Income: +$342.80
= (300*$1.18 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWY unchanged at $53.67): $-8.95
= ($53.67-$53.67)*300 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $55.00): +$390.05
= ($55.00-$53.67)*300 - $8.95 commissions

Total Net Profit(If EWY price unchanged at $53.67): +$333.85
= (+$342.80 +$0.00 -$8.95)
Total Net Profit(If EWY assigned at $50.00): +$732.85
= (+$342.80 +$0.00 +$390.05)

Absolute Return (If EWY unchanged at $53.67): +2.1%
= +$333.85/$16,109.95
Annualized Return If Unchanged (ARIU): +34.4%
= (+$333.85/$16,109.95)*(365/22 days)

Absolute Return if Exercised at $55.00: +4.5%
= +$732.85/$16,109.95
Annualized Return If Exercised (ARIE): +75.5%
= (+$732.85/$16,109.95)*(365/22 days)

Wednesday, November 24, 2010

International Paper Co.(IP) -- Continuation Transaction

The Covered Calls Advisor initially established a Nov2010 covered calls position in International Paper Co.(IP), and this position expired last Friday out-of-the-money. Today, a decision was made to retain the 300 shares of International Paper Co.(IP) and to establish a Dec2010 covered calls position. The transactions history for IP as well as some possible results for this investment is as follows:

1. International Paper Co.(IP) -- Continuation
The transactions history to date for International Paper Co.(IP) is as follows:
11/09/2010 Bought 300 IP @ $25.82
11/09/2010 Sold 3 IP Nov2010 $25.00 Calls @ $1.05
11/19/2010 Ex-Dividend $38.25 = $.1275*300 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of IP was $24.80 on expiration Friday.
11/24/2010 Sold 3 IP Dec2010 $26.00 Calls @ $.53
Note: The price of IP was $25.40 when the call options were sold.

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $7,754.95
= ($25.82*300+$8.95 commission)

Net Profit:
(a) Options Income: +$451.60
= (300*($1.05_$.53) - 2*$11.20 commissions)
(b) Dividend Income): +$38.25 = ($.1275 * 300 shares) Note: Ex-Div was on 11/19/2010
(c) Capital Appreciation (If stock price unchanged at $25.40 upon Dec2010 expiration):
-$134.95 = ($25.40-$25.82)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $26.00): +$45.05
= ($26.00-$25.82)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at $25.40 at Dec2010 expiration): +$354.90
= (+$451.60 +$38.25 -$134.95)
Total Net Profit (If stock assigned at $26.00 at Dec2010 expiration): +$534.90
= (+$451.60 +$38.25 +$45.05)

1. Absolute Return (If stock price unchanged at $25.40 at Dec2010 expiration): +4.6%
= +$354.90/$7,754.95
Annualized Return If Unchanged (ARIU): +42.8%
= (+$354.90/$7,754.95)*(365/39 days)

2. Absolute Return (If stock assigned at $26.00 at Dec2010 expiration): +6.9%
= +$534.90/$7,754.95
Annualized Return If Assigned (ARIA): +64.6%
= (+$534.90/$7,754.95)*(365/39 days)

Monday, November 22, 2010

Establish Domtar Corp.(UFS) Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Domtar Corp.(UFS) covered calls as follows:
Established Domtar Corp.(UFS) Covered Calls for Dec2010:
11/22/2010 Bought 300 UFS @ $78.20
11/22/2010 Sold 3 UFS Dec2010 $80.00 Calls @ $2.35

A prior covered calls position in Domtar has been maintained monthly since Jul2010 options expiration. With the stock price in-the-money at Nov2010 expiration last Friday, the stock was assigned (called away) then. This was a very successful investment over the 5 month period as it achieved an annualized return-on-investment of 60.8%.

Domtar Corporation was formed on August 16, 2006, for the purpose of combining the fine paper assets of Weyerhaeuser with those of Domtar Inc. The company is now the largest integrated manufacturer of uncoated freesheet paper in North America and the second largest in the world with about global 34% market share. The company also makes papergrade, fluff and specialty pulp, lumber and wood products, and manages forestland. Approximately 81% of the company's revenues were generated from the sale of pulp and paper, 15% came from paper distribution, and 4% was from the sale of lumber and wood products. In uncoated freesheet, Domtar has 10 pulp and paper mills in operation (eight in the U.S. and two in Canada) with annual production capacity of
3.9 million tons of uncoated freesheet, 1.9 million tons of market pulp and 238,000 tons of coated groundwood.

Two possible overall performance results(including commissions) for the UFS transactions would be as follows:
Stock Purchase Cost: $23,468.95
= ($78.20*300+$8.95 commission)

Net Profit:
(a) Options Income: +$693.80
= (300*$2.35 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UFS unchanged at $78.20): $-8.95
= ($78.20-$78.20)*300 - $8.95 commissions
(c) Capital Appreciation (If UFS assigned at $80.00): +$531.05
= ($80.00-$78.20)*300 - $8.95 commissions

Total Net Profit(If UFS price unchanged at $78.20): +$684.85
= (+$693.80 +$0.00 -$8.95)
Total Net Profit(If UFS assigned at $80.00): +$1,224.85
= (+$693.80 +$0.00 +$531.05)

Absolute Return (If UFS unchanged at $78.20): +2.9%
= +$684.85/$23,468.95
Annualized Return If Unchanged (ARIU): +41.0%
= (+$684.85/$23,468.95)*(365/26 days)

Absolute Return if Stock Assigned at $80.00: +5.2%
= +$1,224.85/$23,468.95
Annualized Return If Assigned (ARIA): +73.3%
= (+$1,224.85/$23,468.95)*(365/26 days)

Sunday, November 21, 2010

November 2010 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of twelve covered calls positions with November 2010 expirations, with the following results:

- Decisions were made earlier this week to roll-up-and-out from three existing in-the-money Nov2010 covered calls positions (Intel Corp., iShares MSCI Emerging Markets ETF, and Research in Motion Ltd.) into Dec2010 positions. Separate posts were made on this blog earlier this week for each of these transactions on the day they occurred.

- The Nov2010 iPath S&P 500 VIX Short-Term Futures ETN (VXX) covered calls were closed out earlier this week at a nice profit.

Of the remaining eight positions that were held until Nov2010 expiration this past Friday:

- Three positions (Domtar Corp, Guess? Inc, and one-half of the Microsoft Corp. position) finished in-the-money. The calls were exercised and the shares were called away.

The annualized return-on-investment results achieved on these three assigned positions were as follows:
1. Domtar Corp. -- +60.8 %
2. Guess? Inc. -- +66.3 %
3. Microsoft Corp. -- +41.5 %
Detailed results for each of these three covered calls positions that were assigned (called away) upon Nov2010 expiration are described below.
- The remaining six positions in the CCAP (Bank of America, iShares MSCI China ETF, International Paper, one-half of the Microsoft Corp position, Oshkosh Corp, and Petrobras) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Dec2010 covered call positions. The related transactions will be made this week and the actual transactions will be posted on this blog site on the same day they occur.

The overall performance results for the three assigned Nov2010 covered calls positions were as follows:

1. Domtar Corp.(UFS) -- Closed
The transactions history is as follows:
06/23/2010 Bought 400 UFS @ $55.10
06/23/2010 Sold 4 UFS Jul2010 $60.00 Calls @ $1.10
07/17/2010 Jul2010 Options Expired
Note: The closing price of UFS was $47.77 on expiration Friday.
07/22/2010 Sold 4 UFS Aug2010 $55.00 Calls @ $1.20
Note: The price of UFS was $50.80 today when these options were sold.
08/13/2010 Buy-to-Close (BTC) 4 UFS Aug2010 $55.00 Call Options @ $5.70
08/12/2010 Sell-to-Open (STO) 4 UFS Sep2010 $65.00 Call Options @ $1.85
Note: The price of UFS was $61.38 today when these options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 4 UFS Oct2010 $65.00 Call Options @ $2.10
Note: The price of UFS was $63.70 today when these options were sold.
10/13/2010 Buy-to-Close (BTC) 4 UFS Oct2010 $65.00 Call Options @ $5.00
10/13/2010 Sell-to-Open (STO) 4 UFS Nov2010 $70.00 Call Options @ $3.30
11/20/2010 400 shares of UFS were in-the-money and the shares were called away (assigned) at $70.00. Note: The closing price of UFS was $77.40 on expiration this past Friday.

The overall performance results(including commissions) for the Domtar Corp.(UFS) transactions were as follows:
Stock Purchase Cost: $22,048.95
= ($55.10*400+$8.95 commission)

Net Profit:
(a) Options Income: -$543.65
= (400*($1.10+$1.20-$5.70+$1.85+$2.10-$5.00+$3.30) - 7*$11.95 commissions)
(b) Dividend Income: +$100.00 =($.25*400) Ex-dividend was on 9/13/2010
(c) Capital Appreciation (UFS assigned at $70.00): +$5,951.05
= ($70.00-$55.10)*400 - $8.95 commissions

Total Net Profit(UFS assigned at $70.00): +$5,507.40
= (-$543.65 +$100.00 +$5,951.05)

Absolute Return (UFS stock assigned at $70.00): +25.0%
= +$5,507.40/$22,048.95
Annualized Return: +60.8%
= (+$5,507.40/$22,048.95)*(365/150 days)

2. Guess? Inc.(GES) -- Closed
The transactions history was as follows:
10/27/2010 Bought 300 GES @ $39.51
10/27/2010 Sold 3 GES Nov2010 $40.00 Calls @ $1.30
11/20/2010 300 shares of GES were in-the-money and the shares were called away (assigned) at $40.00. Note: The closing price of GES was $44.55 on expiration Friday.

The overall performance results(including commissions) for the Guess? Inc.(GES) transactions were as follows:
Stock Purchase Cost: $11,861.95
= ($39.51*300+$8.95 commission)

Net Profit:
(a) Options Income: +$378.80
= (300*$1.30 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (GES stock assigned at $40.00): +$138.05
= ($40.00-$39.51)*300 - $8.95 commissions

Total Net Profit(GES stock assigned at $40.00): +$516.85
= (+$378.80 +$0.00 +$138.05)

Absolute Return (GES stock assigned at $40.00): +4.4%
= +$516.85/$11,861.95
Annualized Return: +66.3%
= (+$516.85/$11,861.95)*(365/24 days)

3. Microsoft Corp.(MSFT) -- Closed
The transactions history was as follows:
09/29/2010 Bought 500 MSFT @ $24.43
09/29/2010 Sold 5 MSFT Nov2010 $25.00 Calls @ $.76
11/16/2010 Ex-Dividend of $80.00 = $.16 * 500 shares
11/20/2010 500 shares of MSFT were in-the-money and the shares were called away (assigned) at $25.00. Note: The closing price of MSFT was $25.69 on expiration Friday.

The overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions were as follows:
Stock Purchase Cost: $12,223.95
= ($24.43*500+$8.95 commission)

Net Profit:
(a) Options Income: +$367.30
= (500*$.76 - $12.70 commissions)
(b) Dividend Income: +$80.00 =($.16 * 500 shares) Ex-div on 11/16/2010
(c) Capital Appreciation (MSFT stock assigned at $25.00): +$276.05
= ($25.00-$24.43)*500 - $8.95 commissions

Total Net Profit(MSFT stock assigned at $25.00): +$723.35
= (+$367.30 +$80.00 +$276.05)

Absolute Return (Stock Assigned at $25.00): +5.9%
= +$723.35/$12,223.95
Annualized Return: +41.5%
= (+$723.35/$12,223.95)*(365/52 days)

Friday, November 19, 2010

Roll Up and Out -- iShares MSCI Emerging Markets Fund ETF (EEM) Covered Calls

Today is options expiration Friday for Nov2010. This afternoon, with the three iShares MSCI Emerging Markets Fund ETF (EEM) Nov2010 $46.00 calls in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Dec2010 expiration at the $47.00 strike price. The transactions history as well as a potential return-on-investment results are detailed below:

1. iShares MSCI Emerging Markets Fund ETF (EEM) -- Continuation Transaction
With iShares MSCI Emerging Markets Fund ETF (EEM) trading at $46.36, the three existing Nov2010 $46.00 calls were bought back for $.38 (only $.02 of time value remaining in each call option) and subsequently replaced by selling three Dec2010 $47.00 strike options at $1.02 as follows:
11/19/2010 Buy-to-Close (BTC) 3 EEM Nov2010 $46.00 Call Options @ $.38
11/19/2010 Sell-to-Open (STO) 3 EEM Dec2010 $47.00 Call Options @ $1.02
The price of EEM was $46.54 today when these call options were sold.

The transactions history is as follows:
10/27/2010 Bought 300 EEM @ $45.55
10/27/2010 Sold 3 EEM Nov2010 $46.00 Calls @ $.99
11/19/2010 Buy-to-Close (BTC) 3 EEM Nov2010 $46.00 Call Options @ $.38
11/19/2010 Sell-to-Open (STO) 3 EEM Dec2010 $47.00 Call Options @ $1.02

Two possible overall performance results(including commissions) for the EEM transactions would be as follows:
Stock Purchase Cost: $13,673.95
= ($45.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$580.60
= (300*($.99+$1.02) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EEM price unchanged at $46.54):
+$288.05 = ($46.54-$45.55)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$426.05
= ($47.00-$45.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.54): +$868.65
= (+$580.60 +$0.00 +$288.05)
Total Net Profit(If stock assigned at $47.00): +$1,006.65
= (+$580.60 +$0.00 +$426.05)

Absolute Return if Unchanged at $46.54: +6.4%
= +$868.65/$13,673.95
Annualized Return If Unchanged (ARIU): +44.6%
= (+$868.65/$13,673.95)*(365/52 days)

Absolute Return if Assigned at $47.00: +7.4%
= +$1,006.65/$13,673.95
Annualized Return If Assigned (ARIA): +51.7%
= (+$1,006.65/$13,673.95)*(365/52 days)

Tuesday, November 16, 2010

Roll Up and Out -- Research In Motion Ltd.(RIMM) Covered Calls

Today, with Research In Motion Ltd.(RIMM) stock priced at $56.05, the three existing Nov2010 $50.00 calls were bought back for $6.15 (only $.10 of time value remaining in each call option) and then replaced by selling three out-of-the-money Dec2010 $57.50 strike options at $3.05 as follows:
11/16/2010 Buy-to-Close (BTC) 3 RIMM Nov2010 $50.00 Call Options @ $6.15
11/16/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $57.50 Call Options @ $3.05
The price of RIMM was $56.43 today when these call options were sold.

1. Research In Motion Ltd.(RIMM) -- Continuation Transaction
The transactions history is as follows:
09/23/2010 Bought 300 RIMM @ $46.55
09/23/2010 Sold 3 RIMM Oct2010 $47.50 Calls @ $1.64
10/13/2010 Buy-to-Close (BTC) 3 RIMM Oct2010 $47.50 Call Options @ $2.60
10/13/2010 Sell-to-Open (STO) 3 RIMM Nov2010 $50.00 Call Options @ $2.44
11/16/2010 Buy-to-Close (BTC) 3 RIMM Nov2010 $50.00 Call Options @ $6.15
11/16/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $57.50 Call Options @ $3.05

Two possible overall performance results(including commissions) for these Research In Motion Ltd.(RIMM) transactions would be as follows:
Stock Purchase Cost: $13,973.95
= ($46.55*300+$8.95 commission)

Net Profit:
(a) Options Income: -$542.00
= (300*($1.64-$2.60+$2.44-$6.15+$3.05) - 5*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $56.43): +$2,955.05
= ($56.43-$46.55)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $57.50): +$3,276.05
= ($57.50-$46.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $56.43): +$2,413.05
= (-$542.00 +$0.00 +$2,955.05)
Total Net Profit(If stock assigned at $57.50): +$2,734.05
= (-$542.00 +$0.00 +$3,276.05)

Absolute Return (If stock price unchanged at $56.43): +17.3%
= +$2,413.05/$13,973.95
Annualized Return If Unchanged (ARIU): +73.3%
= (+$2,413.05/$13,973.95)*(365/86 days)

Absolute Return if Assigned at $57.50: +19.6%
= +$2,734.05/$13,973.95
Annualized Return If Assigned (ARIA): +83.0%
= (+$2,734.05/$13,973.95)*(365/86 days)

Roll Up and Out -- Intel Corp.(INTC) Covered Calls

Today is four days prior to Nov2010 options expiration. With the three Intel Corp.(INTC) Nov2010 $20.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Dec2010 expiration at the $21.00 strike price. The transactions history as well as a potential return-on-investment result is detailed below:

1. Intel Corp.(INTC) -- Continuation Transaction
With Intel Corp.(INTC) trading at $20.98, the three existing Nov2010 $20.00 calls were bought back for $1.03 (only $.05 of time value remaining in each call option) and subsequently replaced by selling three Dec2010 $21.00 strike options at $.60 as follows:
11/16/2010 Buy-to-Close (BTC) 3 INTC Nov2010 $20.00 Call Options @ $1.03
11/16/2010 Sell-to-Open (STO) 3 INTC Dec2010 $21.00 Call Options @ $.60
The price of INTC was $21.05 today when these call options were sold.

The transactions history to date for Intel Corp.(INTC) is as follows:
10/20/2010 Bought 300 INTC @ $19.45
10/20/2010 Sold 3 INTC Nov2010 $20.00 Call Options @ $.21
11/03/2010 Ex-Dividend of $47.25 = ($.1575 * 300 shares)
11/16/2010 Buy-to-Close (BTC) 3 INTC Nov2010 $20.00 Call Options @ $1.03
11/16/2010 Sell-to-Open (STO) 3 INTC Dec2010 $21.00 Call Options @ $.60

A possible overall performance result(including commissions) for these INTC transactions would be as follows:
Stock Purchase Cost: $5,843.95
= ($19.45*300+$8.95 commission)

Net Profit:
(a) Options Income: -$99.60
= 300*($.21-$1.03+$.60) - 3*$11.20 commissions
(b) Dividend Income: +$47.25 = ($.1575*300 shares) ex-div on 11/3/2010
(c) Capital Appreciation (If stock assigned at $21.00): +$456.05
= ($21.00-$19.45)*300 - $8.95 commissions

Total Net Profit(If stock price assigned at $21.00): +$403.70
= (-$99.60 +$47.25 +$456.05)

Absolute Return if Assigned at $21.00: +6.9%
= +$403.70/$5,843.95
Annualized Return If Assigned (ARIA) +42.7%
= (+$403.70/$5,843.95)*(365/59 days)

iPath S&P 500 VIX Short-Term Futures ETN (VXX) -- Closed

Today, with the stock market moving dramatically lower and thus with volatility (and this VXX holding) spiking higher, a decision was made to sell out of the 300 shares covered calls position in iPath S&P 500 VIX Short-Term Futures ETN (VXX). The results shown below are adjusted for the 4-for-1 reverse split for VXX that occurred on November 9th.

1. iPath S&P 500 VIX Short-Term Futures ETN (VXX) -- Closed
The transactions history was as follows:
10/25/2010 Bought 300 VXX @ $12.37
10/25/2010 Sold 3 VXX Nov2010 $13.00 Calls @ $.70
11/16/2010 Bought-to-Close 3 VXX Nov2010 $13.00 Calls @ $.15
11/16/2001 Sold 75 VXX @ $50.064

The overall performance result(including commissions) for the VXX transactions was as follows:
Stock Purchase Cost: $3,719.95
= ($12.37*300+$8.95 commission)

Net Profit:
(a) Options Income: +$142.60
= (300*($.70-$.15) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (75 VXX share sold at $50.064):
+$34.85 = ($50.064*75 shares - $12.37*300 shares) - $8.95 commissions

Total Net Profit: +$177.45
= (+$142.60 +$0.00 +$34.85)

Absolute Return: +4.8%
= +$177.45/$3,719.95
Annualized Return: +79.1%
= (+$177.45/$3,719.95)*(365/22 days)

Despite the success with this position, the Covered Calls Advisor does not intend to re-establish any covered calls positions using VXX in the future. When volatility spikes higher, VXX seems to participate at an average of only about one-half. Conversely, when volatility moves lower, the normal contango effect of VIX results in approximately one-for-one percentage move down in VXX. This is an undesirable risk-to-reward profile as related to a long position in VXX. Other covered calls positions will provide a better risk-to-reward opportunity whenever a future increase in volatility is expected.

If you have any comments or questions on this post, please submit them by clicking on the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site. Your comments are always welcomed.

Tuesday, November 9, 2010

Establish International Paper Co.(IP) Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of International Paper Co.(IP) covered calls as follows:

Established International Paper Co.(IP) Covered Calls for Apr2010:
11/09/2010 Bought 300 IP @ $25.82
11/09/2010 Sold 3 IP Nov2010 $25.00 Calls @ $1.05

International Paper Company operates as a paper and packaging company with operations in North America, Europe, Latin America, the Russian Federation, Asia, and north Africa. Its Printing Papers segment produces uncoated printing and writing papers, including uncoated papers, market pulp, and uncoated bristols. The company's Industrial Packaging segment manufactures containerboards. Its products include linerboard, medium, whitetop, recycled linerboard, recycled medium, and saturated kraft. Its Consumer Packaging segment produces coated paperboard for various packaging and commercial printing end uses. The company's Distribution segment provides services and products to various customer markets, supplying commercial printers with printing papers and graphic pre-press, printing presses, and post-press equipment; the building services and away-from-home markets with facility supplies; and manufacturers with packaging supplies and equipment, as well as offers warehousing and delivery services. Its Forest Products segment owns and manages forest lands primarily in the United States.

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $7,754.95
= ($25.82*300+$8.95 commission)

Net Profit:
(a) Options Income: +$303.80
= (300*$1.05 - $11.20 commissions)
(b) Dividend Income (If stock assigned at $25.00 at expiration): +$38.25 = ($.1275 * 300 shares)
(b) Dividend Income (If stock assigned at $25.00 -- early exercise on 11/19/2010): $0.00
(c) Capital Appreciation (If stock assigned at $25.00 at expiration): -$254.95
= ($25.00-$25.82)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $25.00--early exercise on 11/19/2010): -$254.95 = ($25.00-$25.82)*300 - $8.95 commissions

Total Net Profit (If stock assigned at $25.00 at expiration): +$87.10
= (+$303.80 +$38.25 -$254.95)
Total Net Profit (If stock assigned at $25.00 -- early exercise on 11/19/2010): +$48.85
= (+$303.80 +$0.00 -$254.95)

1. Absolute Return (If stock assigned at $25.00 at expiration): +1.1%
= +$87.10/$7,754.95
Annualized Return (If stock assigned at $25.00 at expiration): +37.3%
= (+$87.10/$7,754.95)*(365/11 days)

2. Absolute Return (If stock assigned at $25.00 -- early exercise on 11/19/2010): +0.6%
= +$48.85/$7,754.95
Annualized Return (If stock assigned at $25.00 -- early exercise on 11/19/2010): +76.6%
= (+$48.85/$7,754.95)*(365/3 days)

Thursday, November 4, 2010

The Covered Calls Advisor's Investing Process

Question: What is more important, Investing Process or Results?
Answer: Both, but our investing process is actually more important because a disciplined, well-defined process is critically important in order to achieve exceptional long-term investing results.

The greatest benefit of a well-defined, detailed investing process is that it enables us to be objective in our decision-making and to therefore counteract the negative impact that often occurs if we allow our emotions to influence our decisions. I am convinced that emotionally-driven decisions are the primary culprit that causes investors to often buy high (often accompanied by greed) and sell low (often accompanied by fear), the exact opposite of what they had intended to do.

This article presents the six-step investing process followed by the Covered Calls Advisor. The links embedded within the steps below will provide the interested reader with added detail from prior blog posts on this covered calls investing process.

1. Basic Principles: Remain fully invested in near-month covered calls.

2. Top-Down: Develop an Overall Market Outlook

3. Bottom-Up: Follow a Checklist for Stocks Selection.

4. Screen Selected Stocks further for Good Covered Calls characteristics:
(a) Good call option premiums -- Implied Volatility of stock options at least 20% higher than the VIX; and (b) Good options liquidity with call option open interest above 300 -- to achieve closer bid/ask spreads.

5. Establish covered calls positions at strike prices consistent with the Overall Market Outlook in #2 above.

6. Follow position management rules for timely adjusting of existing covered calls positions.

It is my sincere hope that the information presented here will be helpful with your thought processes as you develop and fine-tune your own covered calls investing process. Your comments or questions regarding any aspect of the investing process described in this article are certainly welcomed. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar.


Regards and Godspeed,
Jeff

Bank of America (BAC) -- Continuation Transaction

Today, a decision was made to retain the 400 shares of Bank of America (BAC) and to establish a Nov2010 covered calls position. Bank of America stock performance has been very disappointing since it was purchased in June, but the Covered Calls Advisor maintains his conviction that over the next year, BAC will increase above its book value to a price above the $16.04 original purchase price. The transactions history for BAC as well as some possible results for this investment is as follows:

1. Bank of America (BAC) -- Continuation
The transactions history to date for Bank of America Corp.(BAC) is as follows:
06/21/2010 Bought 400 BAC @ $16.04
06/21/2010 Sold 4 BAC Jul2010 $16.00 Calls @ $.58
07/17/2010 Jul2010 Options Expired
Note: The closing price of BAC was $13.98 on expiration Friday.
07/22/2010 Sold 4 BAC Aug2010 $14.00 Calls @ $.50
Note: The price of BAC was $13.87 today when this option was sold.
08/21/2010 Aug2010 Option Expired
Note: The closing price of BAC was $12.86 on expiration Friday.
09/01/2010 Ex-Dividend $4.00 = $.01*400 shares
09/03/2010 Sold 4 BAC Oct2010 $14.00 Call Options @ $.38
Note: The price of BAC was $13.41 today when these options were sold.
10/16/2010 Oct2010 options expired.
Note: The closing price of BAC was $11.98 on expiration Friday.
11/04/2010 Sold 4 BAC Nov2010 $12.00 Call Options @ $.26
Note: The price of BAC was $11.84 today when these options were sold.

Two possible overall performance results(including commissions) for the Bank of America Corp.(BAC) transactions would be as follows:
Stock Purchase Cost: $6,424.95
= ($16.04*400+$8.95 commission)

Net Profit:
(a) Options Income: +$640.20
= (400*($.58+$.50+$.38+$.26) - 4*$11.95 commissions)
(b) Dividend Income: +$4.00 ($.01*400 shares)
(c) Capital Appreciation (If stock price unchanged at $11.84): -$1,671.05
= ($11.84-$16.04)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $12.00): -$1,624.95
= ($12.00-$16.04)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $11.84): -$1,026.85
= (+$640.20 +$4.00 -$1,671.05)
Total Net Profit(If stock assigned at $12.00): -$980.75
= (+$640.20 +$4.00 -$1,624.95)

Absolute Return (If Stock unchanged at $11.84): -16.0%
= -$1,026.85/$6,424.95
Annualized Return If Unchanged (ARIU): -38.4%
= (-$1,026.85/$6,424.95)*(365/152 days)

Absolute Return if Assigned at $12.00: -15.3%
= -$980.75/$6,424.95
Annualized Return If Assigned (ARIA): -36.7%
= (-$980.75/$6,424.95)*(365/152 days)

Saturday, October 30, 2010

Returns -- Through October 2010

1. October 2010 Year-to-Date Results:

As shown in the table below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the Russell 3000 benchmark by 6.39 percentage points (+7.46-1.07%) so far in 2010:
















CCAP Absolute Return (Jan 1st through October 31st, 2010) = +1.07%
($278,44.54-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through October 31st, 2010) = +7.46%
($70.15-$65.28)/$65.28


2. Prior Years Results:
The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved for 2007, 2008, and 2009 compared with the Russell 3000 benchmark results were as follows:











As a reminder, the Covered Calls Advisor Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all positions in the CCAP are also held in the personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

The Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined:
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.

If you have any comments or questions, please feel free to submit them -- they are always welcomed. Click the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site.

Regards and Godspeed,
Jeff

Wednesday, October 27, 2010

Establish Guess? Inc. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Guess? Inc.(GES) covered calls. Guess was one of the covered calls positions that was called away upon Oct2010 options expiration. Today, the price of GES retreated significantly, largely as a result of a Wedbush downgrade from Buy to Hold. The Covered Calls Advisor took that opportunity to re-establish a Guess? Inc. covered calls position for Nov2010 expiration as follows:

Established Guess? Inc.(GES) Covered Calls for Nov2010:
10/27/2010 Bought 300 GES @ $39.51
10/27/2010 Sold 3 GES Nov2010 $40.00 Calls @ $1.30

Guess?, Inc. designs, markets, distributes and licenses its lifestyle collections of contemporary apparel and accessories for a style-conscious 18-to-32-year-old target audience of men and women around the world. In addition to wholesale and retail distribution channels, GES operates in 67 countries via its licensing and distributor partnerships. Apparel and accessories design teams are located in California in the U.S., and in Florence and Bologna, Italy. It offers collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets, and knitwear. The company also grants licenses to manufacture and distribute a range of products that include eyewear, watches, handbags, footwear, kids' and infants' apparel, leather apparel, swimwear, fragrance, jewelry, intimate apparel, and other fashion accessories. With these collections, Guess is one of the very few international growth retail companies, and the only wonen's-oriented global aspirational/affordable luxury brands with a full lifestyle and accessories offering.

Guess , Inc. markets its apparel under various trademarks, including GUESS, GUESS , GUESS U.S.A., GUESS Jeans, GUESS and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO, and Gc. The company sells its products through retail, wholesale, e-commerce, and licensing distribution channels. Guess operates 425 stores in North America and 96 stores abroad; licensees and distributors operated another 594 non-North American stores.

The Buy Alerts spreadsheet below shows that GES is an attractive value at this time since the total points rating of 16.40 exceeds the Covered Calls Advisor's desired "Buy" threshold of 16.0. Guess is trading at a P/E of 11 based on 2011 estimated forward earnings, which is a 30% discount from both its peers (think RL and ANF) and from its own historic multiple. Also very importantly, at its current price, the future growth potential of the Guess brand seems under-appreciated by investors based on its potential growth drivers related to: (1) rapid expansion in Europe, Asia, and Latin America; (2) expanding new product categories; and (3) potential new store formats. The company's management is very strong, and it recently made good additions to their team -- a new COO from Nike and a new President for Asia who formerly oversaw Levi's huge growth there. The company has $480 million cash, is debt-free, and generates more than $2.50 a share of free cash flow. So it is conceivable that when Guess reports third-quarter results on Nov. 23rd, it might also outline plans for a dividend raise (currently a 64-cents dividend yielding 1.6%), a share buy-back program, and/or even more aggressive expansion plans.























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

Some possible overall performance results(including commissions) for the Guess? Inc.(GES) transactions would be as follows:
Stock Purchase Cost: $11,861.95
= ($39.51*300+$8.95 commission)

Net Profit:
(a) Options Income: +$378.80
= (300*$1.30 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $39.51):
-$8.95 = ($39.51-$39.51)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $40.00): +$138.05
= ($40.00-$39.51)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $39.51): +$369.85
= (+$378.80 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $40.00): +$516.85
= (+$378.80 +$0.00 +$138.05)

Absolute Return if Unchanged at $39.51: +3.1%
= +$369.85/$11,861.95
Annualized Return If Unchanged (ARIU) +47.4%
= (+$369.85/$11,861.95)*(365/24 days)

Absolute Return if Assigned at $40.00: +4.4%
= +$516.85/$11,861.95
Annualized Return If Assigned (ARIA) +66.3%
= (+$516.85/$11,861.95)*(365/24 days)

Establish iShares MSCI Emerging Markets Fund ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI Emerging Markets Fund ETF (EEM) covered calls as follows:

Established iShares MSCI Emerging Markets Fund ETF (EEM) Covered Calls for Nov2010:
10/27/2010 Bought 300 EEM @ $45.55
10/27/2010 Sold 3 EEM Nov2010 $46.00 Calls @ $.99

The iShares MSCI Emerging Markets Fund ETF is a diversified Exchange Traded Fund(ETF) with investment exposure in global emerging market(GEM) countries such as Brazil, China, S Korea, Taiwan, and India. During the past year, emerging market stocks have slightly underperformed developed market stocks, but this advisor believes that trend is poised to reverse. In this regard, six key factors that favor emerging markets include: cheap exchange rates, cheap labor, improving quality of labor, a clearly superior quantity of labor, lower corporate tax rates, and growing economies of scale.

Two possible overall performance results(including commissions) for the EEM transactions would be as follows:
Stock Purchase Cost: $13,673.95
= ($45.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$285.80
= (300*$.99 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EEM price unchanged at $45.55):
-$8.95 = ($45.55-$45.55)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $46.00): +$126.05
= ($46.00-$45.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.55): +$276.85
= (+$285.80 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $46.00): +$411.85
= (+$285.80 +$0.00 +$126.05)

Absolute Return if Unchanged at $45.55: +2.0%
= +$276.85/$13,673.95
Annualized Return If Unchanged (ARIU) +30.8%
= (+$276.85/$13,673.95)*(365/24 days)

Absolute Return if Assigned at $46.00: +3.0%
= +$411.85/$13,673.95
Annualized Return If Assigned (ARIA) +45.8%
= (+$411.85/$13,673.95)*(365/24 days)

Downside Breakeven Price Point: $44.56
Downside Breakeven Protection: 2.0%

Monday, October 25, 2010

Establish iPath S&P 500 VIX Short-Term Futures ETN Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iPath S&P 500 VIX Short-Term Futures ETN (VXX) covered calls as follows:

Established iPath S&P 500 VIX Short-Term Futures ETN (VXX) Covered Calls for Nov2010:
10/25/2010 Bought 300 VXX @ $12.37
10/25/2010 Sold 3 VXX Nov2010 $13.00 Calls @ $.70
The current implied volatility of VXX is above 70 whereas, even with the dramatic and persistent decline in the volatility index (VIX) during the past several months, the VXX 3-month historic volatility is only in the mid 40s. The Covered Calls Advisor views this wide disparity as an opportune time to consider selling the very high implied volatility currently available in VXX options.

Some possible overall performance results(including commissions) for the iPath S&P 500 VIX Short-Term Futures ETN (VXX) transactions would be as follows:
Stock Purchase Cost: $3,719.95
= ($12.37*300+$8.95 commission)

Net Profit:
(a) Options Income: +$198.80
= (300*$.70 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VXX price unchanged at $12.37):
-$8.95 = ($12.37-$12.37)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $13.00): +$180.05
= ($13.00-$12.37)*300 - $8.95 commissions

Total Net Profit(If VXX price unchanged at $12.37): +$189.85
= (+$198.80 +$0.00 -$8.95)
Total Net Profit(If VXX assigned at $13.00): +$378.85
= (+$198.80 +$0.00 +$180.05)

Absolute Return if Unchanged at $12.37: +5.1%
= +$189.85/$3,719.95
Annualized Return If Unchanged (ARIU) +71.6%
= (+$189.85/$3,719.95)*(365/26 days)

Absolute Return if Assigned at $13.00: +10.2%
= +$378.85/$3,719.95
Annualized Return If Assigned (ARIA): +143.0%
= (+$378.85/$3,719.95)*(365/26 days)

Downside Breakeven Price Point: $11.74 = $12.37 - $.70 option income + commissions
Downside Breakeven Protection: 5.1%

If you have any comments or questions on this article please submit them by clicking on the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site. Your comments are always welcomed.

Wednesday, October 20, 2010

Establish Intel Corp. Covered Calls

This past Friday was options expiration for Oct2010. An Oct2010 covered calls position in Intel Corp.(INTC) was in the money at expiration, so the stock was called away for a small profit. Since the fundamental valuation (as shown on the Buy Alerts spreadsheet below) remains strong for Intel, a new covered calls position was established today as follows:

10/20/2010 Bought 300 INTC @ $19.45
10/20/2010 Sold 3 INTC Nov2010 $20.00 Call Options @ $.21

Intel Corp.(INTC) is the world's leading semiconductor producer and has been the industry leader since the inception of the personal computer. Intel produces products for many facets of advanced technology including flash memory products, motherboards, wired and wireless connectivity products and networked storage products. Its 2009 annual sales exceeded $35 billion and should approximate $40 billion this year. This sales increase coupled with an operating margin above 60% should enable Intel to achieve all-time record earnings per share of approximately $2.00 this year. Applying a P/E of 13 (historically low for Intel) against these earnings implies a very reasonable target price potential of $26, which represents an attractive 34% annualized return potential for the underlying stock over the next year.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 16.42 is above the desired threshold of 16 points for a new investment.






















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


Two possible overall performance results(including commissions) for the INTC transactions would be as follows:
Stock Purchase Cost: $5,843.95
= ($19.45*300+$8.95 commission)

Net Profit:
(a) Options Income: +$51.80
= 300*$.21 - $11.20 commissions
(b) Dividend Income: +$47.25 = ($.1575*300 shares) ex-div on 11/3/2010
(c) Capital Appreciation (If stock price unchanged at $19.45):
-$8.95 = ($19.45-$19.45)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $20.00): +$156.05
= ($20.00-$19.45)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $19.45): +$90.10
= (+$51.80 +$47.25 -$8.95)
Total Net Profit(If stock price assigned at $20.00): +$255.10
= (+$51.80 +$47.25 +$156.05)

Absolute Return if Unchanged at $19.45: +1.5%
= +$90.10/$5,843.95
Annualized Return If Unchanged (ARIU) +18.2%
= (+$90.10/$5,843.95)*(365/31 days)

Absolute Return if Assigned at $20.00: +4.4%
= +$255.10/$6,098.95
Annualized Return If Assigned (ARIA) +51.4%
= (+$255.10/$6,098.95)*(365/31 days)