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Wednesday, November 24, 2010

International Paper Co.(IP) -- Continuation Transaction

The Covered Calls Advisor initially established a Nov2010 covered calls position in International Paper Co.(IP), and this position expired last Friday out-of-the-money. Today, a decision was made to retain the 300 shares of International Paper Co.(IP) and to establish a Dec2010 covered calls position. The transactions history for IP as well as some possible results for this investment is as follows:

1. International Paper Co.(IP) -- Continuation
The transactions history to date for International Paper Co.(IP) is as follows:
11/09/2010 Bought 300 IP @ $25.82
11/09/2010 Sold 3 IP Nov2010 $25.00 Calls @ $1.05
11/19/2010 Ex-Dividend $38.25 = $.1275*300 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of IP was $24.80 on expiration Friday.
11/24/2010 Sold 3 IP Dec2010 $26.00 Calls @ $.53
Note: The price of IP was $25.40 when the call options were sold.

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: +$451.60
= (300*($1.05_$.53) - 2*$11.20 commissions)
(b) Dividend Income): +$38.25 = ($.1275 * 300 shares) Note: Ex-Div was on 11/19/2010
(c) Capital Appreciation (If stock price unchanged at $25.40 upon Dec2010 expiration):
-$134.95 = ($25.40-$25.82)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $26.00): +$45.05
= ($26.00-$25.82)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at $25.40 at Dec2010 expiration): +$354.90
= (+$451.60 +$38.25 -$134.95)
Total Net Profit (If stock assigned at $26.00 at Dec2010 expiration): +$534.90
= (+$451.60 +$38.25 +$45.05)

1. Absolute Return (If stock price unchanged at $25.40 at Dec2010 expiration): +4.6%
= +$354.90/$7,754.95
Annualized Return If Unchanged (ARIU): +42.8%
= (+$354.90/$7,754.95)*(365/39 days)

2. Absolute Return (If stock assigned at $26.00 at Dec2010 expiration): +6.9%
= +$534.90/$7,754.95
Annualized Return If Assigned (ARIA): +64.6%
= (+$534.90/$7,754.95)*(365/39 days)

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