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Friday, April 23, 2010

Continuation Transaction -- Neutral Tandem Inc. Covered Calls

Last Friday was options expiration for Apr2010. Today it was decided to retain the 200 shares of Neutral Tandem Inc.(TNDM) and to establish a May2010 covered calls position as follows:

04/23/2010 Sell-to-Open (STO) 2 TNDM May2010 $17.50s @ $.55

The transactions history to date for the covered calls position in TNDM is as follows:
02/26/2010 Bought 200 TNDM @ $15.86
02/26/2010 Sold 2 TNDM Apr2010 $17.50 Calls @ $.40
04/17/2010 Apr2010 Options Expired
04/23/2010 Sell-to-Open (STO) 2 TNDM May2010 $17.50s @ $.55
Note: Price of TNDM was $16.95 when the May2010 options were sold.

Two possible overall performance results (including commissions) for the TNDM transactions would be as follows:
Stock Purchase Cost: $3,160.95
= ($15.76*200+$8.95 commission)

Net Profit:
(a) Options Income: +$169.10
= (200*($.40+$.55) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $16.95):
+$229.05 = ($16.95-$15.76)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $17.50): +$339.05
= ($17.50-$15.76)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $16.95): +$398.15
= (+$169.10 +$0.00 +$229.05)
Total Net Profit(If stock price exercised at $17.50): +$508.15
= (+$169.10 +$0.00 +$339.05)

Absolute Return if Unchanged at $16.95: +12.6%
= +$398.15/$3,160.95
Annualized Return If Unchanged (ARIU): +54.1%
= (+$398.15/$3,160.95)*(365/85 days)

Absolute Return if Exercised at $17.50: +16.1%
= +$508.15/$3,160.95
Annualized Return If Exercised (ARIE): +69.0%
= (+$508.15/$3,160.95)*(365/85 days)

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