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Thursday, November 4, 2010

Bank of America (BAC) -- Continuation Transaction

Today, a decision was made to retain the 400 shares of Bank of America (BAC) and to establish a Nov2010 covered calls position. Bank of America stock performance has been very disappointing since it was purchased in June, but the Covered Calls Advisor maintains his conviction that over the next year, BAC will increase above its book value to a price above the $16.04 original purchase price. The transactions history for BAC as well as some possible results for this investment is as follows:

1. Bank of America (BAC) -- Continuation
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.
10/16/2010 Oct2010 options expired.
Note: The closing price of BAC was $11.98 on expiration Friday.
11/04/2010 Sold 4 BAC Nov2010 $12.00 Call Options @ $.26
Note: The price of BAC was $11.84 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: +$640.20
= (400*($.58+$.50+$.38+$.26) - 4*$11.95 commissions)
(b) Dividend Income: +$4.00 ($.01*400 shares)
(c) Capital Appreciation (If stock price unchanged at $11.84): -$1,671.05
= ($11.84-$16.04)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $12.00): -$1,624.95
= ($12.00-$16.04)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $11.84): -$1,026.85
= (+$640.20 +$4.00 -$1,671.05)
Total Net Profit(If stock assigned at $12.00): -$980.75
= (+$640.20 +$4.00 -$1,624.95)

Absolute Return (If Stock unchanged at $11.84): -16.0%
= -$1,026.85/$6,424.95
Annualized Return If Unchanged (ARIU): -38.4%
= (-$1,026.85/$6,424.95)*(365/152 days)

Absolute Return if Assigned at $12.00: -15.3%
= -$980.75/$6,424.95
Annualized Return If Assigned (ARIA): -36.7%
= (-$980.75/$6,424.95)*(365/152 days)

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