Friday, March 19, 2010

Roll Up and Out -- Apple Inc.

Today is expiration Friday for March 2010. A decision was made to retain Apple Inc. (AAPL) in the Covered Calls Advisor Portfolio and to roll-up-and-out to the Apr2010 expiration at the $230.00 strike price. With the time value remaining in the options at only $.02 [$12.20-($222.18-$210.00)], a roll-up-and-out debit spread transaction was executed today as follows:
03/19/2010 Buy-to-Close (BTC) 1 AAPL Mar2010 $210.00 @ $12.20
03/19/2010 Sell-to-Open (STO) 1 AAPL Apr2010 $230.00s @ $3.40
Note: Net Debit-Spread upon Roll-Up-and-Out was $8.80 ($12.20 - $3.40)

The transactions history to date for Apple Inc. (AAPL) is as follows:
02/24/2010 Bought 100 AAPL @ $198.677
02/24/2010 Sold 1 AAPL Mar2010 $210.00 Call @ $1.57
Roll-Up-and-Out Transaction:
03/19/2010 Buy-to-Close (BTC) 1 AAPL Mar2010 $210.00 @ $12.20
03/19/2010 Sell-to-Open (STO) 1 AAPL Apr2010 $230.00s @ $3.40
Note: The price of AAPL was $222.18 today when this debit-spread was transacted.

Two possible overall performance results(including commissions) for the Apple Inc. (AAPL) transactions would be as follows:
Stock Purchase Cost: $19,876.65
= ($198.677*100+$8.95 commission)

Net Profit:
(a) Options Income: -$742.40
= (100*($1.57-$12.20+$3.40) - 2*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $222.18):
+$2,341.35 = ($222.18-$198.677)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $230.00): +$3,123.35
= ($230.00-$198.677)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $222.18): +$1,598.95
= (-$742.40 +$0.00 +$2,341.35)
Total Net Profit(If stock price exercised at $230.00): +$2,380.95
= (-$742.40 +$0.00 +$3,123.35)

Absolute Return if Unchanged at $222.18: +8.0%
= +$1,598.95/$19,876.65
Annualized Return If Unchanged (ARIU) +55.4%
= (+$1,598.95/$19,876.65)*(365/53 days)

Absolute Return if Exercised at $230.00: +12.0%
= +$2,380.95/$19,876.65
Annualized Return If Exercised (ARIE) +82.5%
= (+$2,380.95/$19,876.65)*(365/53 days)

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