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Friday, February 26, 2010

Continuation Transaction -- China Unicom

Today, the Covered Calls Advisor Portfolio(CCAP) established a covered calls position in China Unicom (CHU) by selling five Mar2010 options against the 500 shares owned in CHU as follows:

02/26/2010 Sell-to-Open (STO) 5 CHU Mar2010 $12.50s @ $.25

China Unicom's price performance has been disappointing since its purchase in the CCAP last October. However, CHU had a substantial upside price move today primarily in response to a Deutsche Bank upgrade to "Buy" -- so the Covered Calls Advisor's open order to sell the CHU Mar2010 $12.50s at $.25 was executed today.

The transactions history to date is as follows:
10/22/09 Bought 500 CHU @ $13.73
10/22/09 Sold 5 CHU Nov09 $15.00 Calls @ $.20
11/21/09 Nov09 Options Expired
11/23/09 Sold 5 CHU Dec09 $15.00 Calls @ $.15
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 5 CHU Jan2010 $12.50s @ $.40
Note: Price of CHU was $12.52 when these Jan2010 options were sold.
02/26/2010 Sell-to-Open (STO) 5 CHU Mar2010 $12.50s @ $.25
Note: Price of CHU was $12.10 when these Mar2010 options were sold.

Two possible performance results (including commissions) for the CHU transactions would be as follows:
Stock Purchase Cost: $6,873.95
= ($13.73*500+$8.95 commission)

Net Profit:
(a) Options Income: +$455.20
= 500*($.20+$.15+$.40+$.25) - 4*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $12.10):
-$823.95 = ($12.10-$13.73)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $12.50): -$623.95
= ($12.50-$13.73)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $12.10): -$368.75
= (+$455.20 +$0.00 -$823.95)
Total Net Profit(If stock price exercised at $12.50): -$168.75
= (+$455.20 +$0.00 -$623.95)

Absolute Return if Unchanged at $12.10: -5.4%
= -$368.75/$6,873.95
Annualized Return If Unchanged (ARIU): -13.1%
= (-$368.75/$6,873.95)*(365/149 days)

Absolute Return if Exercised at $12.50: -2.5%
= -$168.75/$6,873.95
Annualized Return If Exercised (ARIE): -6.0%
= (-$168.75/$6,873.95)*(365/149 days)

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