Thursday, April 15, 2010

Roll Up and Out -- Fluor Corp., Gap Inc., and iShares MSCI China ETF

Today is the day prior to options expiration Friday for April 2010. The Covered Calls Advisor remains bullish on the prospects for Fluor Corp.(FLR), Gap Inc.(GPS), and iShares MSCI China ETF(FXI); so a decision was made to retain them in the Covered Calls Advisor Portfolio (CCAP) and to roll-up-and-out to the May2010 expiration. The detailed transactions history as well as some possible results for each position are presented below:

1. Fluor Corp.(FLR) -- Continuation Transaction
Today, with the existing Fluor covered calls being deep-in-the-money and the time value remaining in the Apr2010 $45.00 covered calls at only $.01 [$6.40-($51.39-$45.00)], a roll-out credit spread transaction was executed as follows:
04/15/2010 Buy-to-Close (BTC) 3 FLR Apr2010 $45.00s @ $6.40
04/15/2010 Sell-to-Open (STO) 3 FLR May2010 $50.00s @ $2.85
Note: Net Debit Spread upon Roll-Up-and-Out was $3.55 ($6.40 - $2.85)

The transactions history to date for Fluor Corp. (FLR) is as follows:
09/22/09 Bought 300 FLR @ $54.93
09/22/09 Sold 3 FLR Oct09 $55.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of FLR was $50.24 on expiration Friday.
10/19/09 Sell-to-Open (STO) 3 FLR Nov09 $55.00s @ $.95
The price of FLR was $51.57 today when this transaction was executed.
11/11/09 Buy-to-Close (BTC) 3 FLR Nov09 $55.00s @ $.05
11/11/09 Sell-to-Open (STO) 3 FLR Nov09 $45.00s @ $1.15
Note: Net Credit-Spread upon Roll-Down was $1.10 ($1.15 - $.05)
11/21/09 Nov09 Options Expired
The closing price of FLR was $44.19 on expiration Friday.
12/02/2009 Ex-Dividend $37.50 (.125*300 shares)
12/15/09 Sell-to-Open (STO) 3 FLR Jan2010 $45.00s @ $1.10
Note: The price of FLR was $43.10 today when this transaction was made.
01/16/2010 Jan2010 Options Expired
03/03/2010 Ex-Dividend $37.50 (.125*300 shares)
03/03/2010 Sell-to-Open (STO) 3 FLR Mar2010 $45.00s @ $.35
Note: Price of FLR was $43.26 when the Mar2010 options were sold.
03/17/2010 Buy-to-Close (BTC) 3 FLR Mar2010 $45.00s @ $1.35
03/17/2010 Sell-to-Open (STO) 3 FLR Apr2010 $45.00s @ $2.15
Note: Price of FLR was $46.26 when the Apr2010 credit-spread transaction occurred.
04/15/2010 Buy-to-Close (BTC) 3 FLR Apr2010 $45.00s @ $6.40
04/15/2010 Sell-to-Open (STO) 3 FLR May2010 $50.00s @ $2.85
Note: Price of FLR was $51.39 when the debit-spread transaction occurred.

A possible overall performance result(including commissions) for the FLR transactions would be as follows:
Stock Purchase Cost: $16,487.95
= ($54.93*300+$8.95 commission)

Net Profit:
(a) Options Income: +$731.60
= (300*($1.95+$.95-$.05+$1.15+$1.10+$.35-$1.35+$2.15-$6.40+$2.85) - 7*$11.20 commissions)
(b) Dividend Income: +$75.00 =($.125*2)*300 shares
(c) Capital Appreciation (If exercised at $50.00): -$1,487.95
= ($50.00-$54.93)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $50.00): -$298.55
= (+$731.60 +$75.00 -$1,105.15)

Absolute Return if Exercised at $50.00: -1.8%
= -$298.55/$16,487.95
Annualized Return If Exercised (ARIE) -2.7%
= (-$1,105.15/$16,487.95)*(365/242 days)

2. Gap Inc.(GPS) -- Continuation Transaction
With the time value remaining in the GPS options at only $.04 [$2.30-($25.26-$23.00)], a roll-up-and-out debit spread transaction was executed today as follows:
04/15/2010 Buy-to-Close (BTC) 3 GPS Apr2010 $23.00s @ $2.30
04/15/2010 Sell-to-Open (STO) 3 GPS May2010 $25.00s @ $1.00
Note: Net Debit-Spread upon Roll-Up-and-Out was $1.30 ($2.30 - $1.00)

The transactions history to date for Gap Inc. (GPS) is as follows:
02/22/2010 Bought 300 GPS @ $19.76
02/22/2010 Sold 3 GPS Mar2010 $20.00 Calls @ $.60
Roll-Up-and-Out Transaction:
03/12/2010 Buy-to-Close (BTC) 3 GPS Mar2010 $20.00s @ $2.80
03/12/2010 Sell-to-Open (STO) 3 GPS Apr2010 $23.00s @ $.55
Note: The price of GPS was $22.76 today when this debit-spread was transacted and the remaining time value in the Mar2010 options was only $.04 [$2.80-($22.76-$20.00)].
04/05/2010 Ex-Dividend = $30.00 (300 shares*$.10)
04/15/2010 Buy-to-Close (BTC) 3 GPS Apr2010 $23.00s @ $2.30
04/15/2010 Sell-to-Open (STO) 3 GPS May2010 $25.00s @ $1.00
Note: Price of GPS was $25.26 when the debit-spread transaction occurred.

A possible overall performance result(including commissions) for the Gap Inc. (GPS) transactions would be as follows:
Stock Purchase Cost: $5,936.95
= ($19.76*300+$8.95 commission)

Net Profit:
(a) Options Income: -$918.60
= (300*($.60-$2.80+$.55-$2.30+$1.00) - 3*$11.20 commissions)
(b) Dividend Income: +$30.00 =(300 shares*$.10)
(c) Capital Appreciation (If exercised at $25.00): +$1,563.05
= ($25.00-$19.76)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $25.00): +$674.45
= (-$918.60 +$30.00 +$1,563.05)

Absolute Return if Exercised at $25.00: +11.4%
= +$674.45/$5,936.95
Annualized Return If Exercised (ARIE) +46.6%
= (+$674.45/$5,936.95)*(365/89 days)

3. iShares MSCI China ETF (FXI) -- Continuation
Today, with the time value remaining in the FXI options at only $.05 [$.97-($43.92-$43.00)], a roll-up-and-out credit spread transaction was executed today as follows:
04/15/2010 Buy-to-Close (BTC) 10 FXI Apr2010 $43.00s @ $.97
04/15/2010 Sell-to-Open (STO) 10 FXI May2010 $45.00s @ $.99
Note: Net Credit-Spread upon Roll-Up-and-Out was $.02 ($.99 - $.97)

The transactions history to date for iShares MSCI China ETF (FXI) is as follows:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44
11/27/09 Bought 400 FXI @ $42.54
11/27/09 Sold 4 FXI Dec09 $44.00 Calls @ $1.13
12/19/09 Dec09 Options Expired
12/24/09 Sell-to-Open (STO) 10 FXI Jan2010 $43.00s @ $.63
Note: Price of FXI was $42.22 when the Jan2010 options were sold.
03/01/2010 Sell-to-Open (STO) 10 FXI Mar2010 $42.00s @.46
Note: Price of FXI was $40.54 when the Mar2010 options were sold.
03/20/2010 Mar2010 Options Expired
03/29/2010 Sell-to-Open (STO) 10 FXI Apr2010 $43.00s @ $.33
Note: Price of FXI was $41.49 when the Apr2010 options were sold.
04/15/2010 Buy-to-Close (BTC) 10 FXI Apr2010 $43.00s @ $.97
04/15/2010 Sell-to-Open (STO) 10 FXI May2010 $45.00s @ $.99
Note: Price of FXI was $43.92 when the May2010 options were sold.

Two possible performance results (including commissions) for the FXI transactions would be as follows:
Stock Purchase Cost: $44,357.90
= ($45.54*600+$42.54*400+2*$8.95 commission)

Net Profit:
(a) Options Income: +$2,693.30
= (600*($1.44+$.63+$.46+$.33-$.97+$.99)+400*($1.13+$.63+$.46+$.33-$.97+$.99) - 6*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $43.92):
-$428.95 = [($43.92-$45.54)*600-($43.92-$42.54)*400] - $8.95 commissions
(c) Capital Appreciation (If exercised at $45.00): +$651.05
= [($45.00-$45.54)*600-($45.00-$42.54)*400] - $8.95 commissions

Total Net Profit(If stock price unchanged at $43.92): +$2,264.35
= (+$2,693.30 +$0.00 -$428.95)
Total Net Profit(If stock exercised at $45.00): +$3,344.35
= (+$2,693.30 +$0.00 +$651.05)

Absolute Return if Stock Price Unchanged at $43.92: +5.1%
= +$2,264.35/$44,357.90
Annualized Return If Unchanged (ARIU): +10.1%
= (+$2,264.35/$44,357.90)*(365/185 days)

Absolute Return if Stock Exercised at $45.00: +7.5%
= +$3,344.35/$44,357.90
Annualized Return If Exercised (ARIE): +14.9%
= (+$3,344.35/$44,357.90)*(365/185 days)

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