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Friday, April 16, 2010

Roll Up and Out -- Apple Inc. and Interdigital Inc.

Today is options expiration Friday for April 2010. The Covered Calls Advisor decided to retain the positions in Apple Inc.(AAPL) and Interdigital Inc(IDCC) so the decision was made to roll-up-and-out to the May2010 expiration. The transactions history as well as some possible results for each position are detailed below:

1. Apple Inc.(AAPL) -- Continuation Transaction
Today, with Apple Inc. stock priced at $248.90 the existing Apr2010 $230.00 covered calls were deep-in-the-money and the time value remaining in the $230.00 covered calls at only $.10 [$19.00-($248.90-$230.00)], a roll-out debit spread transaction was executed as follows:
04/16/2010 Buy-to-Close (BTC) 1 AAPL Apr2010 $230.00 @ $19.00
04/16/2010 Sell-to-Open (STO) 1 AAPL May2010 $250.00 @ $9.40
Note: Net Debit Spread upon Roll-Up-and-Out was $9.60 ($19.00 - $9.40)

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.
04/16/2010 Buy-to-Close (BTC) 1 AAPL Apr2010 $230.00 @ $19.00
04/16/2010 Sell-to-Open (STO) 1 AAPL May2010 $250.00 @ $9.40
Note: The price of AAPL was $248.90 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: -$1,712.10
= (100*($1.57-$12.20+$3.40-$19.00+$9.40) - 3*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $248.90):
+$5,013.35 = ($248.90-$198.677)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $250.00): +$5,123.35
= ($250.00-$198.677)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $248.90): +$3,301.25
= (-$1,712.10 +$0.00 +$5,013.35)
Total Net Profit(If stock price exercised at $250.00): +$3,411.25
= (-$1,712.10 +$0.00 +$5,123.35)

Absolute Return if Unchanged at $248.90: +16.6%
= +$3,301.25/$19,876.65
Annualized Return If Unchanged (ARIU) +69.7%
= (+$3,301.25/$19,876.65)*(365/87 days)

Absolute Return if Exercised at $250.00: +17.2%
= +$3,411.25/$19,876.65
Annualized Return If Exercised (ARIE) +72.0%
= (+$3,411.25/$19,876.65)*(365/87 days)


2. Interdigital Inc.(IDCC) -- Continuation Transaction
With the time value remaining in the IDCC options at only $.06 [$.50-($29.44-$29.00)], a roll-up-and-out credit spread transaction was executed today as follows:
04/16/2010 Buy-to-Close (BTC) 2 IDCC Apr2010 $29.00s @ $.50
04/16/2010 Sell-to-Open (STO) 2 IDCC May2010 $31.00s @ $.65
Note: Net Credit-Spread upon Roll-Up-and-Out was $.15 ($.65 - $.50)

The transactions history to date for Interdigital Inc.(IDCC) is as follows:
03/25/2010 Bought 200 IDCC @ $28.03
03/25/2010 Sold 2 IDCC Apr2010 $29.00 Calls @ $.50
04/16/2010 Buy-to-Close (BTC) 2 IDCC Apr2010 $29.00s @ $.50
04/16/2010 Sell-to-Open (STO) 2 IDCC May2010 $31.00s @ $.65
Note: The price of IDCC was $29.44 today when this credit-spread was transacted.

Some possible overall performance results(including commissions) for the IDCC transactions would be as follows:
Stock Purchase Cost: $5,614.95
= ($28.03*200+$8.95 commission)

Net Profit:
(a) Options Income: +$109.10
= (200*($.50-$.50+$.65 - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.44):
+273.05 = ($29.44-$28.03)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $31.00): +$585.05
= ($31.00-$28.03)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.44): +$382.15
= (+$109.10 +$0.00 +$273.05)
Total Net Profit(If stock price exercised at $31.00): +$694.15
= (+$109.10 +$0.00 +$585.05)

Absolute Return if Unchanged at $29.44: +6.8%
= +$382.15/$5,614.95
Annualized Return If Unchanged (ARIU) +42.8%
= (+$80.60/$5,614.95)*(365/58 days)

Absolute Return if Exercised at $29.00: +12.4%
= +$694.15/$5,614.95
Annualized Return If Exercised (ARIE) +77.8%
= (+$694.15/$5,614.95)*(365/58 days)

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