Friday, April 16, 2010

Early Exercise -- International Paper Co.

The Covered Calls Advisor received an email notification overnight that the two call options in International Paper Co.(IP) were exercised yesterday -- hence, the 200 shares owned in IP were called away (sold) at the $26.00 strike price. This early exercise is a desirable outcome since: (1) the max potential profit was realized on this covered calls position and it was achieved one day earlier than would have otherwise occurred; (2) this early exercise frees up cash in the Covered Calls Advisor Portfolio which opens the possibility of establishing a new covered calls position for May2010 today (Friday) and not needing to wait until next Monday (i.e. after assignment that would likely occur this weekend as a result of Apr2010 expiration today); and (3) it was the Covered Calls Advisor's intention to allow the shares in IP to be called away today anyway (upon Apr2010 expiration), so the early exercise is a welcomed event.

The performance results (including commissions) for the covered calls position in International Paper Co.(IP) were as follows:
Stock Purchase Cost: $7,529.95
= ($25.07*300+$8.95 commission)

Net Profit:
(a) Options Income: +$126.05
= (300*$.45 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock Assigned at $26.00): +$270.05
= ($26.00-$25.07)*300 - $8.95 commissions

Total Net Profit(Stock Assigned at $26.00): +$396.10
= (+$126.05 +$0.00 +$270.05)

Absolute Return (Stock Assigned at $26.00): +5.3%
= +$396.10/$7,529.95
Annualized Return: +91.4%
= (+$396.10/$7,529.95)*(365/21 days)