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Monday, March 22, 2010

Continuation Transaction -- Quanta Services Inc.

Last Friday was options expiration for March 2010. In a recent post on this Covered Calls Advisor's blog, it was noted that of the nine covered calls positions held until expiration for March 2010: (1) Three were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Six positions ended out-of-the-money. Today, it was decided to retain one stock that ended out-of-the-money last Friday (Quanta Services Inc.) in the CCAP and to re-establish covered calls positions at the Apr2010 $20.00 strike price. Decisions regarding the remaining five equities currently held in the CCAP (to either sell them or to retain them and establish Apr2010 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. A detailed explanations of the covered calls position established today for Quanta Services Inc. (PWR) is as follows:

1. Quanta Services Inc.(PWR) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Quanta Services Inc.(PWR) was out-of-the-money at Mar2010 expiration. Today it was decided to retain the 300 shares of Quanta Services and to establish a Apr2010 covered calls position as follows:

03/22/2010 Sell-to-Open (STO) 3 PWR Apr2010 $20.00s @ $.45

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)
03/20/2010 Mar2010 Options Expired
03/22/2010 Sell-to-Open (STO) 3 PWR Apr2010 $20.00s @ $.45
Note: Price of PWR was $19.72 today when the Apr2010 call options were sold.

Net Profit:
(a) Options Income: +$356.40
= (300*($.50 +$.35 +$.45) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $19.72):
-$332.95 = ($19.72-$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 $19.72): +$23.45
= (+$356.40 +$0.00 -$332.95)
Total Net Profit(If stock price exercised at $20.00): +$107.45
= (+$356.40 +$0.00 -$248.95)

Absolute Return if Unchanged at $19.72: +0.4%
= +$23.45/$6,248.95
Annualized Return If Unchanged (ARIU) +1.2%
= (+$23.45/$6,248.95)*(365/117 days)

Absolute Return if Exercised at $20.00: +1.7%
= +$107.45/$6,248.95
Annualized Return If Exercised (ARIE) +5.4%
= (+$107.45/$6,248.95)*(365/117 days)

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