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Monday, October 18, 2010

Petrobras (PBR) -- Continuation Transaction

This past Friday was expiration Friday for October 2010 options. In the Covered Calls Advisor's most recent blog post, it was noted that of the thirteen covered calls positions with Oct2010 expirations, three positions ended out-of-the-money. Today, a decision was made to retain the shares in one of these three positions (Petrobras) and to establish a Nov2010 covered calls position. The transactions history for each position as well as some possible results for each of these investments are as follows:

1. Petrobras (PBR) -- Continuation
The transactions history is as follows:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 today when these options were sold.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Oct2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.

Two possible overall performance results(including commissions) for the Petrobras (PBR) transactions would be as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$973.00
= (300*($1.05+$.55+$.58+$.63+$.62) - 5*$11.20 commissions)
(b) Dividend Income: +$57.90 ($.193 * 300 shares) Net Ex-Dividend on 8/2/2010
(c) Capital Appreciation (If PBR unchanged at $34.20): $-1,550.95
= ($34.20-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $36.00): -$1,010.95
= ($36.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $34.20): -$520.05
= (+$973.00 +$57.90 -$1,550.95)
Total Net Profit(If PBR assigned at $36.00): +19.95
= (+$973.00 +$57.90 -$1,010.95)

Absolute Return (If PBR unchanged at $34.20): -4.4%
= -$520.05/$11,810.95
Annualized Return If Unchanged (ARIU): -10.6%
= (-$577.95/$11,810.95)*(365/152 days)

Absolute Return (If Assigned at $36.00): +0.2%
= +$19.95/$11,810.95
Annualized Return If Assigned: +0.4%
= (+$19.95/$11,810.95)*(365/152 days)

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