Tuesday, November 16, 2010

Roll Up and Out -- Intel Corp.(INTC) Covered Calls

Today is four days prior to Nov2010 options expiration. With the three Intel Corp.(INTC) Nov2010 $20.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Dec2010 expiration at the $21.00 strike price. The transactions history as well as a potential return-on-investment result is detailed below:

1. Intel Corp.(INTC) -- Continuation Transaction
With Intel Corp.(INTC) trading at $20.98, the three existing Nov2010 $20.00 calls were bought back for $1.03 (only $.05 of time value remaining in each call option) and subsequently replaced by selling three Dec2010 $21.00 strike options at $.60 as follows:
11/16/2010 Buy-to-Close (BTC) 3 INTC Nov2010 $20.00 Call Options @ $1.03
11/16/2010 Sell-to-Open (STO) 3 INTC Dec2010 $21.00 Call Options @ $.60
The price of INTC was $21.05 today when these call options were sold.

The transactions history to date for Intel Corp.(INTC) is as follows:
10/20/2010 Bought 300 INTC @ $19.45
10/20/2010 Sold 3 INTC Nov2010 $20.00 Call Options @ $.21
11/03/2010 Ex-Dividend of $47.25 = ($.1575 * 300 shares)
11/16/2010 Buy-to-Close (BTC) 3 INTC Nov2010 $20.00 Call Options @ $1.03
11/16/2010 Sell-to-Open (STO) 3 INTC Dec2010 $21.00 Call Options @ $.60

A possible overall performance result(including commissions) for these INTC transactions would be as follows:
Stock Purchase Cost: $5,843.95
= ($19.45*300+$8.95 commission)

Net Profit:
(a) Options Income: -$99.60
= 300*($.21-$1.03+$.60) - 3*$11.20 commissions
(b) Dividend Income: +$47.25 = ($.1575*300 shares) ex-div on 11/3/2010
(c) Capital Appreciation (If stock assigned at $21.00): +$456.05
= ($21.00-$19.45)*300 - $8.95 commissions

Total Net Profit(If stock price assigned at $21.00): +$403.70
= (-$99.60 +$47.25 +$456.05)

Absolute Return if Assigned at $21.00: +6.9%
= +$403.70/$5,843.95
Annualized Return If Assigned (ARIA) +42.7%
= (+$403.70/$5,843.95)*(365/59 days)

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