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Tuesday, November 9, 2010

Establish International Paper Co.(IP) Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of International Paper Co.(IP) covered calls as follows:

Established International Paper Co.(IP) Covered Calls for Apr2010:
11/09/2010 Bought 300 IP @ $25.82
11/09/2010 Sold 3 IP Nov2010 $25.00 Calls @ $1.05

International Paper Company operates as a paper and packaging company with operations in North America, Europe, Latin America, the Russian Federation, Asia, and north Africa. Its Printing Papers segment produces uncoated printing and writing papers, including uncoated papers, market pulp, and uncoated bristols. The company's Industrial Packaging segment manufactures containerboards. Its products include linerboard, medium, whitetop, recycled linerboard, recycled medium, and saturated kraft. Its Consumer Packaging segment produces coated paperboard for various packaging and commercial printing end uses. The company's Distribution segment provides services and products to various customer markets, supplying commercial printers with printing papers and graphic pre-press, printing presses, and post-press equipment; the building services and away-from-home markets with facility supplies; and manufacturers with packaging supplies and equipment, as well as offers warehousing and delivery services. Its Forest Products segment owns and manages forest lands primarily in the United States.

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $7,754.95
= ($25.82*300+$8.95 commission)

Net Profit:
(a) Options Income: +$303.80
= (300*$1.05 - $11.20 commissions)
(b) Dividend Income (If stock assigned at $25.00 at expiration): +$38.25 = ($.1275 * 300 shares)
(b) Dividend Income (If stock assigned at $25.00 -- early exercise on 11/19/2010): $0.00
(c) Capital Appreciation (If stock assigned at $25.00 at expiration): -$254.95
= ($25.00-$25.82)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $25.00--early exercise on 11/19/2010): -$254.95 = ($25.00-$25.82)*300 - $8.95 commissions

Total Net Profit (If stock assigned at $25.00 at expiration): +$87.10
= (+$303.80 +$38.25 -$254.95)
Total Net Profit (If stock assigned at $25.00 -- early exercise on 11/19/2010): +$48.85
= (+$303.80 +$0.00 -$254.95)

1. Absolute Return (If stock assigned at $25.00 at expiration): +1.1%
= +$87.10/$7,754.95
Annualized Return (If stock assigned at $25.00 at expiration): +37.3%
= (+$87.10/$7,754.95)*(365/11 days)

2. Absolute Return (If stock assigned at $25.00 -- early exercise on 11/19/2010): +0.6%
= +$48.85/$7,754.95
Annualized Return (If stock assigned at $25.00 -- early exercise on 11/19/2010): +76.6%
= (+$48.85/$7,754.95)*(365/3 days)

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