Monday, February 22, 2010

Continuation Transactions -- ITT Corporation and Quanta Services Inc.

This past Friday was options expiration Friday for February 2010. In a recent post on this Covered Calls Advisor's blog, it was noted that of the twelve covered calls positions for February 2010: (1) Two were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Ten positions ended out-of-the-money. Today, it was decided to retain two stocks (ITT Corporation and Quanta Services Inc.) in the CCAP and to establish covered calls positions with them. Decisions regarding the remaining equities currently held in the CCAP (to either sell them or to retain them and establish Mar2010 covered calls positions) will be made this week, and the associated transactions will be posted on this blog site on the same day they occur. Detailed explanations of the covered calls positions established today for ITT and PWR are as follows:

1. ITT Corporation (ITT) -- Continuation
Today it was decided to retain the 300 shares of ITT Corporation (ITT) and to establish an Apr2010 covered calls position as follows:

02/22/2010 Sell-to-Open (STO) 3 ITT Apr2010 $55.00s @ $.55

Normally, the Covered Calls Advisor sells the near-month expiration. But with ITT currently priced at $51.48, the first out-of-the-money strike price is at $55 and its near-month(Mar2010) expiration was bid at only $.15. So a decision was made to extend to the Apr2010 expiration and obtain a more satisfactory $.55 call option premium for selling the Apr2010 $55 strike.

The transactions history to date for ITT is as follows:
10/23/09 Bought 300 ITT @ $55.28
10/23/09 Sold 3 ITT Nov09 $55.00 Calls @ $2.60
11/10/09 Ex-Dividend $63.75 = $.2125 * 300 shares
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 ITT Jan10 $55.00s @ $.85
Note: Price of ITT was $51.55 when the Jan10 options were sold.
01/16/2010 Jan2010 Options Expired
02/22/2010 Sell-to-Open (STO) 3 ITT Apr2010 $55.00s @ $.55
03/01/2010 Ex-Dividend $75.00 = $.25 * 300 shares

Some possible overall performance results(including commissions) for the ITT transactions would be as follows:
Stock Purchase Cost: $16,592.95
($55.28*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,166.40 (300*($2.60+$.85+$.55) - 3*$11.20 commissions)
(b) Dividend Income: +$138.75 = ($.2125+$.250) * 300 shares
c) Capital Appreciation(If stock price unchanged at $51.48): -$1,148.95
= ($51.48-$55.28)*300 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $55.00): -$92.95
= ($55.00-$55.28)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $51.48): +$156.20
= (+$1,166.40 +$138.75 -$1,148.95)
Total Net Profit(If stock exercised at $55.00): +$1,212.20
= (+$1,166.40 +$138.75 -$92.95)

Absolute Return if Stock Price Unchanged at $51.48: +0.9%
= +156.20/$16,592.95
Annualized Return If Unchanged (ARIU): +2.0%
= (+156.20/$16,592.95)*(365/176 days)

Absolute Return if Stock Exercised at $55.00: +7.3%
= +$1,212.20/$16,592.95
Annualized Return If Exercised (ARIE): +15.2%
= (+$1,212.20/$16,592.95)*(365/176 days)


2. Quanta Services Inc.(PWR) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Quanta Services Inc.(PWR) was out-of-the-money at Feb2010 expiration. Today it was decided to retain the 300 shares of Quanta Services and to establish a Mar2010 covered calls position as follows:

02/22/2010 Sell-to-Open (STO) 3 PWR Mar2010 $20.00s @ $.35

The transactions history to date for the covered calls position in PWR is as follows:
12/21/09 Bought 300 PWR @ $20.80
12/21/09 Sold 3 PWR Feb2010 $22.50 Calls @ $.50
02/20/2010 Feb2010 Options Expired
02/22/2010 Sell-to-Open (STO) 3 PWR Mar2010 $20.00s @ $.35
Note: Price of PWR was $19.20 today when the Mar2010 call options were sold.
Some possible overall performance results(including commissions) for the PWR transactions would be as follows:
Stock Purchase Cost: $6,248.95
= ($20.80*300+$8.95 commission)

Net Profit:
(a) Options Income: +$232.60
= (300*($.50 +$.35) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $19.20):
-$488.95 = ($19.20-$20.80)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $20.00): -$248.95
= ($20.00-$20.80)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $19.20): -$256.35
= (+$232.60 +$0.00 -$488.95)
Total Net Profit(If stock price exercised at $20.00): -$16.35
= (+$232.60 +$0.00 -$248.95)

Absolute Return if Unchanged at $19.20: -4.1%
= -$256.35/$6,248.95
Annualized Return If Unchanged (ARIU) -16.8%
= (-$256.35/$6,248.95)*(365/89 days)

Absolute Return if Exercised at $20.00: -0.3%
= -$16.35/$6,248.95
Annualized Return If Exercised (ARIE) -1.1%
= (-$16.35/$6,248.95)*(365/89 days)

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