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Friday, September 3, 2010

Continuation Transactions -- Bank of America Corp., Intel Corp., and Microsoft Corp.

Today, shares in Bank of America Corp.(BAC), Intel Corp.(INTC), and Microsoft Corp.(MSFT) were retained and call options were sold to establish Oct2010 covered calls positions. Normally, the Covered Calls Advisor establishes near-month (in this case that would be Sep2010) covered calls. But the Sep2010 slightly-out-of-the-money strike price call option premiums were less than the minimum desired value of $.30, so the positions were extended to Oct2010 expirations. The transactions history as well as some possible results for these positions are detailed below:

1. Bank of America Corp.(BAC) -- Continuation Transaction

The transactions history to date for Bank of America Corp.(BAC) is as follows:
06/21/2010 Bought 400 BAC @ $16.04
06/21/2010 Sold 4 BAC Jul2010 $16.00 Calls @ $.58
07/17/2010 Jul2010 Options Expired
Note: The closing price of BAC was $13.98 on expiration Friday.
07/22/2010 Sold 4 BAC Aug2010 $14.00 Calls @ $.50
Note: The price of BAC was $13.87 today when this option was sold.
08/21/2010 Aug2010 Option Expired
Note: The closing price of BAC was $12.86 on expiration Friday.
09/01/2010 Ex-Dividend $4.00 = $.01*400 shares
09/03/2010 Sold 4 BAC Oct2010 $14.00 Call Options @ $.38
Note: The price of BAC was $13.41 today when these options were sold.

Two possible overall performance results(including commissions) for the Bank of America Corp.(BAC) transactions would be as follows:
Stock Purchase Cost: $6,424.95
= ($16.04*400+$8.95 commission)

Net Profit:
(a) Options Income: +$548.15
= (400*($.58+$.50+$.38) - 3*$11.95 commissions)
(b) Dividend Income: +$4.00 ($.01*400 shares)
(c) Capital Appreciation (If stock price unchanged at $13.41): -$1,043.05
= ($16.04-$13.41)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $14.00): -$824.95
= ($14.00-$16.04)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $13.41): -$490.90
= (+$548.15 +$4.00 -$1,043.05)
Total Net Profit(If stock assigned at $14.00): -$272.80
= (+$548.15 +$4.00 -$824.95)

Absolute Return (If Stock unchanged at $13.41): -7.6%
= -$490.90/$6,424.95
Annualized Return If Unchanged (ARIU) -23.8%
= (-$490.90/$6,424.95)*(365/117 days)

Absolute Return if Assigned at $14.00: -4.2%
= -$272.80/$6,424.95
Annualized Return If Exercised (ARIE) -13.2%
= (-$416.85/$6,424.95)*(365/117 days)


2. Intel Corporation (INTC) -- Continuation Transaction

The transactions history to date for Intel Corp (INTC) is as 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.
7/17/2010 Jul2010 Options Expired
Note: The closing price of INTC was $21.02 on expiration Friday.
07/22/2010 Sold 3 INTC Aug2010 $22.00 Calls @ $.42
Note: The price of INTC was $21.70 today when these options were sold.
08/04/2010 Ex-Dividend $4.00 = $.1575*300 shares
08/21/2010 Aug2010 Option Expired
Note: The closing price of INTC was $18.91 on expiration Friday.
09/03/2010 Sold 3 INTC Oct2010 $19.00 Call Options @ $.43
Note: The price of INTC was $18.24 today when these options were sold.

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

Net Profit:
(a) Options Income: +$504.20
= 300*($.52+$.46+$.42+$.43) - 4*$11.20 commissions
(b) Dividend Income: +$47.25 ($.1575 * 300 shares)
(c) Capital Appreciation (If stock price unchanged at $18.24):
-$626.95 = ($18.24-$20.30)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $19.00): -$398.95
= ($19.00-$20.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $18.24): -$75.50
= (+$504.20 +$47.25 -$626.95)
Total Net Profit(If stock price exercised at $19.00): +$152.50
= (+$504.20 +$47.25 -$398.95)

Absolute Return (If Stock Unchanged at $18.24): -1.2%
= -$75.50/$6,098.95
Annualized Return If Unchanged (ARIU): -3.1%
= (+$844.70/$6,098.95)*(365/148 days)

Absolute Return if Exercised at $19.00: +2.5%
= +$152.50/$6,098.95
Annualized Return If Exercised (ARIE): +6.2%
= (+$152.50/$6,098.95)*(365/148 days)


3. Microsoft Corporation (MSFT) -- Continuation Transaction

The transactions history to date for Microsoft Corporation (MSFT) is as follows:
07/23/2010 Bought 500 MSFT @ $25.47
07/23/2010 Sold 5 MSFT Aug2010 $26.00 Calls @ $.44
08/17/2010 Ex-Dividend $65.00 = $.13 * 500 shares
08/21/2010 Aug2010 Option Expired
Note: The closing price of MSFT was $24.23 on expiration Friday.
09/03/2010 Sold 5 MSFT Oct2010 $25.00 Call Options @ $.49
Note: The price of MSFT was $24.31 today when these options were sold.

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $12,743.95
= ($25.47*500+$8.95 commission)

Net Profit:
(a) Options Income: +$439.60
= (500*($.44+$.49) - 2*$12.70 commissions)
(b) Dividend Income: +$65.00 =($.13 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $24.31):
-$588.95 = ($24.31-$25.47)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $25.00): -$243.95
= ($25.00-$25.47)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.31): -$84.35
= (+$439.60 +$65.00 -$588.95)
Total Net Profit(If stock price exercised at $25.00): +$260.65
= (+$439.60 +$65.00 -$243.95)

Absolute Return if Unchanged at $24.31: -0.7%
= -$84.35/$12,743.95
Annualized Return If Unchanged (ARIU) -2.8%
= (-$84.35/$12,743.95)*(365/85 days)

Absolute Return if Exercised at $25.00: +2.0%
= +$260.65/$12,743.95
Annualized Return If Exercised (ARIE) +8.8%
= (+$260.65/$12,743.95)*(365/85 days)

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