Thursday, April 22, 2010

Continuation Transactions -- ProShares UltraShort 20+ Year Treasury ETF Covered Calls

Last Friday was options expiration for Apr2010. Today it was decided to retain the 300 ProShares UltraShort 20+ Year Treasury ETF(TBT) and to double the existing position by purchasing an additional 300 shares. With these 600 shares, a May2010 covered calls position was established as follows:

04/22/2010 Buy 300 TBT @ $46.63
04/22/2010 Sell-to-Open (STO) 6 TBT May2010 $49.00s @ $.43

The transactions history to date for the covered calls position in ProShares UltraShort 20+ Year Treasury ETF(TBT) is as follows:
03/22/2010 Bought 300 TBT @ $46.81
03/22/2010 Sold 3 TBT Apr2010 $48.00 Calls @ $.45
04/17/2010 3 Apr2010 TBT Options Expired
Note: Price of TBT was $47.70 upon Apr2010 expiration.
04/22/2010 Buy 300 TBT @ $46.63
04/22/2010 Sell-to-Open (STO) 6 TBT May2010 $49.00s @ $.43

Two possible overall performance results (including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $28,049.90
= ($46.81*300+$46.63*300+2*$8.95 commission)

Net Profit:
(a) Options Income: +$368.35
= (300*$.45 + $600*$.43 -$11.20 commissions -$13.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT price unchanged at $46.63):
-$71.90 = ($46.63-$46.81)*300 + ($46.63-$46.63)*300 - 2*$8.95 commissions
(c) Capital Appreciation (If TBT exercised at $49.00): +$1,350.10
= ($49.00-$46.81)*300 + ($49.00-$46.63)*300 - 2*$8.95 commissions

Total Net Profit(If price unchanged at $46.63): +$296.45
= (+$368.35 +$0.00 -$71.90)
Total Net Profit(If TBT exercised at $49.00): +$1,718.45
= (+$368.35 +$0.00 +$1,350.10)

Absolute Return if Unchanged at $46.63: +1.1%
= +$296.45/$28,049.90
Annualized Return If Unchanged (ARIU): +8.4%
= (+$296.45/$28,049.90)*(365/46 days)

Absolute Return if Exercised at $49.00: +6.1%
= +$1,718.45/$28,049.90
Annualized Return If Exercised (ARIE): +48.6%
= (+$1,718.45/$28,049.90)*(365/46 days)

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