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Monday, October 25, 2010

Establish iPath S&P 500 VIX Short-Term Futures ETN Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iPath S&P 500 VIX Short-Term Futures ETN (VXX) covered calls as follows:

Established iPath S&P 500 VIX Short-Term Futures ETN (VXX) Covered Calls for Nov2010:
10/25/2010 Bought 300 VXX @ $12.37
10/25/2010 Sold 3 VXX Nov2010 $13.00 Calls @ $.70
The current implied volatility of VXX is above 70 whereas, even with the dramatic and persistent decline in the volatility index (VIX) during the past several months, the VXX 3-month historic volatility is only in the mid 40s. The Covered Calls Advisor views this wide disparity as an opportune time to consider selling the very high implied volatility currently available in VXX options.

Some possible overall performance results(including commissions) for the iPath S&P 500 VIX Short-Term Futures ETN (VXX) transactions would be as follows:
Stock Purchase Cost: $3,719.95
= ($12.37*300+$8.95 commission)

Net Profit:
(a) Options Income: +$198.80
= (300*$.70 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VXX price unchanged at $12.37):
-$8.95 = ($12.37-$12.37)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $13.00): +$180.05
= ($13.00-$12.37)*300 - $8.95 commissions

Total Net Profit(If VXX price unchanged at $12.37): +$189.85
= (+$198.80 +$0.00 -$8.95)
Total Net Profit(If VXX assigned at $13.00): +$378.85
= (+$198.80 +$0.00 +$180.05)

Absolute Return if Unchanged at $12.37: +5.1%
= +$189.85/$3,719.95
Annualized Return If Unchanged (ARIU) +71.6%
= (+$189.85/$3,719.95)*(365/26 days)

Absolute Return if Assigned at $13.00: +10.2%
= +$378.85/$3,719.95
Annualized Return If Assigned (ARIA): +143.0%
= (+$378.85/$3,719.95)*(365/26 days)

Downside Breakeven Price Point: $11.74 = $12.37 - $.70 option income + commissions
Downside Breakeven Protection: 5.1%

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1 comment:

  1. VXX is going to split soon be careful! Or maybe that wont effect anything..

    ReplyDelete