Monday, June 21, 2010

Intel Corp (INTC) -- Continuation

Last Friday was expiration Friday for June 2010. In a Covered Calls Advisor's blog recent post, it was noted that of the six covered calls positions held until Jun2010 expiration, four were in-the-money at expiration and were therefore exercised and the stocks were called away, and two positions ended out-of-the-money. The two out-of-money positions were SPDR S&P 500 ETF (SPY) and Intel Corp.(INTC). The prior post on this blog details this advisor's decision to sell out of the SPY position. A decision was made to retain the 300 shares of INTC and to establish a covered calls position against these 300 shares by selling 3 Jul2010 $22.00 calls. Shares of Intel have moved nicely higher since purchased last month at $20.30. In addition to continuing to meet the Buy Alerts spreadsheet purchase requirements, the target price rationale described previously continues to apply, namely: "This sales increase coupled with an operating margin approaching 62% should enable Intel to achieve all-time record earnings per share approaching $2.00 in 2011. Applying a P/E of 13 (historically low for Intel) against these earnings implies a very reasonable target price potential of $26, which represents an attractive 28% annualized return potential for the underlying stock over the next year."

So, today the following covered calls continuation trade was executed:
06/21/2010 Sold 3 INTC Jul2010 $22.00 Call Options @$.46

1. Intel Corp (INTC) -- Continuation
The transactions history is follows:
05/21/2010 Bought 300 INTC @ $20.30
05/21/2010 Sold 3 INTC Jun2010 $22.00 Call Options @ $.52
06/21/2010 Sold 3 INTC Jul2010 $22.00 Call Options @$.46
Note: The price of INTC was $21.60 when these options were sold.

Two possible overall performance results(including commissions) for the INTC transactions would be as follows:
Stock Purchase Cost: $6,098.95
= ($20.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$271.60
= 300*($.52+$.46) - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.60):
+$381.05 = ($21.60-$20.30)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $22.00): +$501.05
= ($22.00-$20.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $21.60): +$652.65
= (+$271.60 +$0.00 +$381.05)
Total Net Profit(If stock price exercised at $22.00): +$772.65
= (+$271.60 +$0.00 +$501.05)

Absolute Return (If Stock Unchanged at $21.60): +10.7%
= +$652.65/$6,098.95
Annualized Return If Unchanged (ARIU): +68.5%
= (+$652.65/$6,098.95)*(365/57 days)

Absolute Return if Exercised at $22.00: +12.7%
= +$772.65/$6,098.95
Annualized Return If Exercised (ARIE): +81.1%
= (+$772.65/$6,098.95)*(365/57 days)

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