Thursday, June 3, 2010

Establish Petrobras Covered Calls

A new covered call position was established today in the Covered Calls Advisor Portfolio(CCAP) with Petrobras(PBR) as follows:

06/03/2010 Bought 500 PBR @ $36.259
06/03/2010 Sold 5 PBR Jun2010 $38.00 Call Options @ $.56

Petroleo Brasileiro (commonly known as Petrobras) is a mixed joint stock corporation controlled by Brazil's federal government. PBR is one of the largest oil and gas companies in the world, and operates in four segments: Exploration and Production, Supply, Gas and Energy, and Distribution. The Exploration and Production segment engages in the exploration, development, and production of oil, liquefied natural gas, and natural gas in Brazil; and sells petroleum and bye products produced in natural gas processing plants. The Supply segment involves in the refining, logistic, transportation, and sale of oil products, petroleum, and alcohol. It also holds interests in petrochemical companies and fertilizer plants. The Gas and Energy segment involves in the purchase, sale, and transportation of natural gas produced in or imported into Brazil. This segment also generates and distributes electric power; and holds interests in national gas transporters and distributors, and thermoelectric power stations. The Distribution segment distributes oil products, fuel alcohol, and compressed natural gas in Brazil. The company also engages in the exploration, production, supply, and distribution of oil and gas in the Americas, Africa, Europe, and Asia. Petroleo Brasileiro was founded in 1953 and is headquartered in Rio de Janeiro, Brazil.

Two possible overall performance results(including commissions) for the PBR transactions would be as follows:
Stock Purchase Cost: $18,138.45
= ($36.259*500+$8.95 commission)

Net Profit:
(a) Options Income: +$267.30
= 500*$.56 - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $36.259):
-$8.95 = ($36.259-$36.259)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $38.00): +$861.55
= ($38.00-$36.259)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $36.259): +$258.35
= (+$267.30 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $38.00): +$1,128.85
= (+$267.30 +$0.00 +$861.55)

Absolute Return if Unchanged at $36.259: +1.4%
= +$258.35/$18,138.45
Annualized Return If Unchanged (ARIU): +32.5%
= (+$258.35/$18,138.45)*(365/16 days)

Absolute Return if Exercised at $38.00: +6.2%
= +$1,128.85/$18,138.45
Annualized Return If Exercised (ARIE): +142.0%
= (+$1,128.85/$18,138.45)*(365/16 days)