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Thursday, June 3, 2010

Establish S&P 500 Spyder (SPY) Covered Calls

Most of the remaining cash (except for 5% of the total portfolio value) in the Covered Calls Advisor Portfolio(CCAP) was used to establish an out-of-the-money position in the S&P 500 Spyder (SPY) covered calls as follows:

06/03/2010 Bought 900 SPY @ $110.519
06/03/2010 Sold 9 SPY Jun2010 $112.00 Call Options @ $1.54

Two possible overall performance results(including commissions) for the SPY transactions would be as follows:
Stock Purchase Cost: $99,476.05
= ($110.519*900+$8.95 commission)

Net Profit:
(a) Options Income: +$1,370.30
= 900*$1.54 - $15.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $110.519):
-$8.95 = ($110.519-$110.519)*900 - $8.95 commissions
(c) Capital Appreciation (If exercised at $112.00): +$1,323.95
= ($112.00-$110.519)*900 - $8.95 commissions

Total Net Profit(If stock price unchanged at $110.519): +$1,361.35
= (+$1,370.30 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $112.00): +$2,694.25
= (+$1,370.30 +$0.00 +$1,323.95)

Absolute Return if Unchanged at $110.519: +1.4%
= +$1,361.35/$99,476.05
Annualized Return If Unchanged (ARIU): +31.2%
= (+$1,361.35/$99,476.05)*(365/16 days)

Absolute Return if Exercised at $112.00: +2.7%
= +$2,694.25/$99,476.05
Annualized Return If Exercised (ARIE): +61.8%
= (+$2,694.25/$99,476.05)*(365/16 days)

Establishing positions for the Jun2010 Covered Calls Advisor Portfolio are now completed. The current covered calls positions are always shown in the right sidebar. These positions were established in accordance with the Slightly Bullish strategy which is to sell options that are, on average, 2% out-of-the-money and for the near-month expiration.


  1. Any particular reason your choosing to simply do a market covered call instead of selecting a variety of individual companies? Wouldnt that give you a better ability to choose companies which stand up better to volatile markets?

  2. This position was taken simply for convenience. I prefer individual stocks for the reason you mentioned as well as the opportunity to take advantage of selling higher option premiums (because of the higher volatility from individual stocks when compared with a large basket of stocks via ETFs). I intend to return to primarily individual stocks beginning with next month's covered calls positions.