Search This Blog

Friday, January 15, 2010

Roll Up and Out -- Noble Corp. (NE)

Today is expiration Friday for January 2010. A decision was made to retain Noble Corp.(NE) in the Covered Calls Advisor Portfolio and to roll-up-and-out to the Feb2010 expiration at the $45.00 strike price. With about 15 minutes remaining in the trading day, the Jan2010 $43.00 covered calls were in-the-money (with NE at $43.67), and since the time value remaining in the options was only $.03 [$.70-($43.67-$43.00)], a roll-up-and-out credit spread transaction was executed as follows:
01/15/2010 Buy-to-Close (BTC) 3 NE Jan2010 $43.00s @ $.70
01/15/2010 Sell-to-Open (STO) 3 NE Feb2010 $45.00s @ $1.30
Note: Net Credit-Spread upon Roll-Up-and-Out was $.60 ($1.30 - $.70)

The transactions history to date for Noble Corp.(NE) is as follows:
09/02/09 Bought 300 NE @ $33.98
09/02/09 Sold 3 NE Sep09 $34.00 Calls @ $1.30
Roll-Up-and-Out Transaction:
09/17/09 Buy-to-Close (BTC) 3 NE Sep09 $34.00s @ $5.22
09/17/09 Sell-to-Open (STO) 3 NE Oct09 $36.00s @ $3.87
Note: The price of NE was $39.19 today when this debit-spread was transacted and the remaining time value in the Sep09 option was only $.03 [$5.22-($39.19-$34.00)].
Roll-Up-and-Out Transaction:
10/16/09 Buy-to-Close (BTC) 3 NE Oct09 $36.00s @ $5.60
10/16/09 Sell-to-Open (STO) 3 NE Nov09 $42.00s @ $1.75
Note: The price of NE was $41.56 today when this transaction occurred.
11/05/09 Ex-Dividend = $14.70 (300 shares*$.049)
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 NE Dec09 $42.00s @ $1.45
Note: Price of NE was $41.30 when the Dec09 options were sold.
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 3 NE Jan2010 $43.00s @ $.90
Note: Price of NE was $41.75 when the Jan2010 options were sold.
01/15/2010 Buy-to-Close (BTC) 3 NE Jan2010 $43.00s @ $.70
01/15/2010 Sell-to-Open (STO) 3 NE Feb2010 $45.00s @ $1.30
Note: Price of NE was $43.67 when the Feb2010 options were sold.

Some possible overall performance results(including commissions) for the NE transactions would be as follows:
Stock Purchase Cost: $10,202.95
($33.98*300+$8.95 commission)

Net Profit:
(a) Options Income: -$352.20
= (300*($1.30-$5.22+$3.87-$5.60+$1.75+$1.45+$.90-$.70+$1.30) - 6*$11.20 commissions)
(b) Dividend Income: +$14.70
(c) Capital Appreciation (If stock price unchanged at $43.67): +$2,898.05
= ($43.67-$33.98)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $45.00): +$3,297.05
= ($45.00-$33.98)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $43.67): +$2,560.55
= (-$352.20 +$14.70 +$2,898.05)
Total Net Profit(If stock price exercised at $45.00): +$2,959.55
= (-$352.20 +$14.70 +$3,297.05)

Absolute Return if Stock Price Unchanged at $43.67: +25.1%
= +$2,560.55/$10,202.95
Annualized Return If Unchanged (ARIU) +53.6%
= (+$2,560.55/$10,202.95)*(365/171 days)

Absolute Return if Exercised at $45.00: +29.0%
= +$2,959.55/$10,202.95
Annualized Return If Exercised (ARIE) +61.9%
= (+$2,959.55/$10,202.95)*(365/171 days)

1 comment:

  1. Jeff,
    Many thanks for a detailed outline on how you've handled NE. The educational value of this example is superb.

    Michael

    ReplyDelete