Friday, April 23, 2010

Continuation Transaction -- Sohu.com Covered Calls

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

04/23/2010 Sell-to-Open (STO) 2 SOHU May2010 $55.00s @ $1.45

The transactions history to date for the covered calls position in SOHU is as follows:
10/16/09 Bought 200 SOHU @ $64.05
10/16/09 Sold 2 SOHU Nov09 $65.00 Calls @ $3.50
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 2 SOHU Dec09 $60.00s @ $.75
Note: Price of SOHU was $55.10 when the Dec09 options were sold.
12/19/09 Dec09 Options Expired
12/28/09 Sell-to-Open (STO) 2 SOHU Jan2010 $60.00s @ $.85
Note: Price of SOHU was $57.52 when the Jan2010 options were sold.
01/16/2010 Jan2010 Options Expired
01/19/2010 Sell-to-Open (STO) 2 SOHU Feb2010 $60.00s @ $3.10
Note: Price of SOHU was $60.37 when the Feb2010 options were sold.
02/20/2010 Feb2010 Options Expired
03/03/2010 Sell-to-Open (STO) 2 SOHU Apr2010 $55.00s @ $1.05
Note: Price of SOHU was $51.37 when the Apr2010 options were sold.
04/17/2010 Apr2010 Options Expired
04/23/2010 Sell-to-Open (STO) 2 SOHU May2010 $55.00s @ $1.45
Note: Price of SOHU was $52.10 when the May2010 options were sold.

Two possible overall performance results (including commissions) for the SOHU transactions would be as follows:
Stock Purchase Cost: $12,818.95
= ($64.05*200+$8.95 commission)

Net Profit:
(a) Options Income: +$2,077.30
= (200*($3.50+$.75+$.85+$3.10+$1.05+$1.45) - 6*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $52.10): -$2,398.95
= ($52.10-$64.05)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $55.00): -$1,818.95
= ($55.00-$64.05)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $52.10): -$321.65
= (+$2,077.30 +$0.00 -$2,398.95)
Total Net Profit(If stock exercised at $55.00): +$258.35
= (+$2,077.30 +$0.00 -$1,818.95)

Absolute Return if Stock Price Unchanged at $52.10: -2.5%
= -$321.65/$12,818.95
Annualized Return If Unchanged (ARIU): -4.2%
= (-$321.65/$12,818.95)*(365/218 days)

Absolute Return if Stock Exercised at $55.00: +2.0%
= +$258.35/$12,818.95
Annualized Return If Exercised (ARIE): +3.4%
= (+$258.35/$12,818.95)*(365/218 days)

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