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Tuesday, February 23, 2010

Continuation Transaction -- Packaging Corporation of America

Today, the Covered Calls Advisor Portfolio(CCAP) established a covered calls position in Packaging Corporation of America(PKG) by selling three Apr2010 options against the 300 shares owned in PKG as follows:

02/23/2010 Sell-to-Open (STO) 3 PKG Apr2010 $25.00s @ $.50

Normally, the Covered Calls Advisor sells the near-month expiration. But with PKG currently priced at $23.38, the first out-of-the-money strike price is at $25.00 and its near-month(Mar2010) expiration was bid at only $.10. Since this advisor continues to be bullish on PKG and wants to maintain it in the CCAP, a decision was made to extend to the Apr2010 expiration and obtain a more satisfactory $.50 call option premium by selling the Apr2010 $25.00 strike.

The transactions history to date is as follows:
01/08/2010 Bought 300 PKG @ $23.89
01/08/2010 Sold 3 PKG Feb2010 $25.00 Calls @ $.80
02/20/2010 Feb2010 Options Expired
02/23/2010 Sell-to-Open (STO) 3 PKG Apr2010 $25.00s @ $.50
Note: Price of PKG was $23.38 when these call options were sold.
03/11/2010 Ex-Dividend of $45.00=$.15*300 shares

Some possible overall performance results(including commissions) for the PKG transactions would be as follows:
Stock Purchase Cost: $7,175.95
= ($23.89*300+$8.95 commission)

Net Profit:
(a) Options Income: +$367.60
= 300*($.80+$.50) - 2*$11.20 commissions
(b) Dividend Income: +$45.00 = $.15*300 shares
(c) Capital Appreciation (If stock price unchanged at $23.38):
-$161.95 = ($23.38-$23.89)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $25.00): +$324.05
= ($25.00-$23.89)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $23.38): +$250.65
= (+$367.60 +$45.00 -$161.95)
Total Net Profit(If stock price exercised at $25.00): +$736.65
= (+$367.60 +$45.00 +$324.05)

Absolute Return if Unchanged at $23.38: +3.5%
= +$250.65/$7,175.95
Annualized Return If Unchanged (ARIU): +12.9%
= (+$250.65/$7,175.95)*(365/99 days)

Absolute Return if Exercised at $25.00: +10.3%
= +$736.65/$7,175.95
Annualized Return If Exercised (ARIE): +37.8%
= (+$736.65/$7,175.95)*(365/99 days)

1 comment:

  1. Jeff,
    4/17/10: I agreed with your assessment of this issue back in Feb. I also entered and sold the Apr 25's against it at that time. Looks like a profitable callout for both of us this weekend.

    Michael
    www.safe-options-trading-income.com

    ReplyDelete