Wednesday, June 23, 2010

Establish Covered Calls in Best Buy, Domtar Corp, and Symantec Corp

With a portion of the cash received from the four positions that were in-the-money and therefore called away last Friday upon Jun2010 expiration, three new covered calls positions were established today. For each of these three positions, the Covered Calls Advisor believes that a strong case can be made that they are temporarily undervalued now and that each has a reasonably good chance of being 40%+ higher by this time next year.

1. Best Buy Co. Inc. (BBY) -- Covered Calls Established
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Best Buy Co. Inc. (BBY) covered calls as follows:
Established Best Buy Co. Inc. (BBY) Covered Calls for Jul2010:
06/23/2010 Bought 400 BBY @ $36.08
06/23/2010 Sold 4 BBY Jul2010 $37.00 Calls @ $.82

Best Buy is the leading consumer electronics retailer in the U.S. and also in the relatively early stages of its international expansion plans. It operates 1,069 Best Buy stores, 74 Best Buy Mobile stand-alone stores, 35 Pacific Sales showrooms, eight Magnolia Audio Video stores and six Geek Squad stand-alone stores in the U.S. BBY also operated 887 Carphone
Warehouse and 1,566 The Phone House Stores in Europe, 208 stores in Canada, and 164 stores in China. U.S. Best Buy stores average approximately 39,000 retail square feet, and offer products in six revenue categories: consumer electronics (39% of revenues), home office (34%), entertainment software (16%), appliances (4%), services (6%), and other (1%). Best Buy's largest category, consumer electronics, includes products such as televisions, digital cameras and accessories, digital camcorders and accessories, e-readers, DVD players, MP3 players and accessories, musical instruments, navigation products, home theater audio systems and components, and mobile electronics including car stereo and satellite radio products. Best Buy stock price has declined substantially recently because of its quarterly earnings disappointment. This advisor believes this decline is an overreaction given that management reiterated their current year earnings guidance at $3.45 to $3.60. At today's purchase price of $36.08, this is a P/E ratio of less than 12 which is the lowest P/E level for BBY in the last decade, a good value-oriented entry point for this position.

Two possible overall performance results(including commissions) for the BBY transactions would be as follows:
Stock Purchase Cost: $14,440.95
= ($36.08*400+$8.95 commission)

Net Profit:
(a) Options Income: +$339.95
= (400*$.82 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BBY unchanged at $36.08): $-8.95
= ($36.08-$36.08)*400 - $8.95 commissions
(c) Capital Appreciation (If BBY assigned at $37.00): +$359.05
= ($37.00-$36.08)*400 - $8.95 commissions

Total Net Profit(If BBY price unchanged at $36.08): +$331.00
= (+$339.95 +$0.00 -$8.95)
Total Net Profit(If BBY assigned at $37.00): +$699.00
= (+$339.95 +$0.00 +$359.05)

Absolute Return (If BBY unchanged at $36.08): +2.3%
= +$331.00/$14,440.95
Annualized Return If Unchanged (ARIU): +34.9%
= (+$331.00/$14,440.95)*(365/24 days)

Absolute Return if Exercised at $37.00: +4.8%
= +$699.00/$14,440.95
Annualized Return If Exercised (ARIE): +73.6%
= (+$699.00/$14,440.95)*(365/24 days)

2. Domtar Corp.(UFS) -- Covered Calls Established
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Domtar Corp.(UFS) covered calls as follows:
Established Domtar Corp.(UFS) Covered Calls for Jul2010:
06/23/2010 Bought 400 UFS @ $55.10
06/23/2010 Sold 4 UFS Jul2010 $60.00 Calls @ $1.10

Domtar Corporation was formed on August 16, 2006, for the purpose of combining
the fine paper assets of Weyerhaeuser with those of Domtar Inc. The company is now the largest integrated manufacturer of uncoated freesheet paper in North America and the second largest in the world with about global 34% market share. The company also
makes papergrade, fluff and specialty pulp, lumber and wood products, and manages forestland. Approximately 81% of the company's revenues were generated from the sale of pulp and paper, 15% came from paper distribution, and 4% was from the sale of lumber and wood products. In uncoated freesheet, Domtar has 10 pulp and paper mills in operation (eight in the U.S. and two in Canada) with annual production capacity of
3.9 million tons of uncoated freesheet, 1.9 million tons of market pulp and 238,000 tons of coated groundwood.

The Buy Alerts spreadsheet below shows that Domtar earns a total points of 16.98, well above the minimum threshold of 15.0:





















Note: For expanded view, left click on the spreadsheet above.


Two possible overall performance results(including commissions) for the UFS transactions would be as follows:
Stock Purchase Cost: $22,048.95
= ($55.10*400+$8.95 commission)

Net Profit:
(a) Options Income: +$428.05
= (400*$1.10 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UFS unchanged at $55.10): $-8.95
= ($55.10-$55.10)*400 - $8.95 commissions
(c) Capital Appreciation (If UFS assigned at $60.00): +$1,951.05
= ($60.00-$55.10)*400 - $8.95 commissions

Total Net Profit(If UFS price unchanged at $55.10): +$419.10
= (+$428.05 +$0.00 -$8.95)
Total Net Profit(If UFS assigned at $60.00): +$2,379.10
= (+$428.05 +$0.00 +$1,951.05)

Absolute Return (If UFS unchanged at $55.10): +1.9%
= +$428.05/$22,048.95
Annualized Return If Unchanged (ARIU): +29.5%
= (+$428.05/$22,048.95)*(365/24 days)

Absolute Return if Exercised at $60.00: +10.8%
= +$2,379.10/$22,048.95
Annualized Return If Exercised (ARIE): +164.1%
= (+$2,379.10/$22,048.95)*(365/24 days)

3. Symantec Corp. -- Covered Calls Established
A new covered call position was established today in the Covered Calls Advisor Portfolio(CCAP) with Symantec Corp.(SYMC). A similar covered calls position in SYMC with a Jun2010 expiration and a $15.00 strike price was called away at expiration. With the price of SYMC back below $15.00 today, a covered calls position was established as follows:
06/23/2010 Bought 300 SYMC @ $14.70
06/23/2010 Sold 3 SYMC Jul2010 $15.00 Call Options @ $.31

Symantec Corporation is a leading software provider of security, storage, and systems management solutions that enable companies and consumers to protect their network infrastructure from security threats. It operates in four segments: Consumer, Security and Compliance, Storage and Server Management, and Services. The Consumer segment provides consumer security software suites and services, primarily under the Norton AntiVirus Software brand which currently has a 53% market share in this segment. The Security and Compliance segment provides software solutions for enterprise security, endpoint management, and archiving applications. The Storage and Server Management segment focuses on providing storage management, high availability, and backup and recovery solutions in heterogeneous storage and server platforms to enterprise customers. The Services segment offers consulting services, which include advisory, product enablement, and residency services to enable customers to assess, design, transform, and operate their infrastructure. In addition, it offers maintenance support contracts, including content, upgrades, and technical support to enterprises; and self-help online services, phone, chat, email support, and fee-based premium support and diagnostic services to consumers. The company markets and sells its products through distributors, retailers, direct marketers, Internet-based resellers, original equipment manufacturers, system builders, and Internet service providers; and its e-commerce channels, as well as direct sales force, value-added and large account resellers, and system integrators. It has operations in the Americas, which includes the United States, Canada, and Latin America; EMEA that comprise Europe, the Middle East, and Africa; and the Asia Pacific-Japan. Symantec Corporation was founded in 1982 and is headquartered in Cupertino, California.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 15.14 exceeds the minimum purchase threshold of 15 points for a new investment.





















Note: For expanded view, left click on the spreadsheet above.


Two possible overall performance results(including commissions) for the SYMC transactions would be as follows:
Stock Purchase Cost: $4,418.95
= ($14.70*300+$8.95 commission)

Net Profit:
(a) Options Income: +$81.80
= 300*$.31 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $14.70):
-$8.95 = ($14.70-$14.70)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $15.00): +$81.05
= ($15.00-$14.70)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $14.70): +$72.85
= (+$81.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $15.00): +$162.85
= (+$81.80 +$0.00 +$81.05)

Absolute Return if Unchanged at $14.70: +1.6%
= +$72.85/$4,418.95
Annualized Return If Unchanged (ARIU) +25.1%
= (+$72.85/$4,418.95)*(365/24 days)

Absolute Return if Exercised at $15.00: +3.7%
= +$162.85/$4,418.95
Annualized Return If Exercised (ARIE) +56.0%
= (+$162.85/$4,418.95)*(365/24 days)

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