Tuesday, December 21, 2010

Domtar Corp.(UFS), iShares MSCI Emerging Markets ETF (EEM), and Petrobras (PBR) -- Continuation Transactions

This past Friday was expiration Friday for December 2010 options. In the Covered Calls Advisor's Dec2010 options expiration blog post, it was noted that of the eleven covered calls positions with Dec2010 expirations, four positions ended out-of-the-money. Today, a decision was made to retain the shares in three of these four positions [Domtar Corp.(UFS), iShares MSCI Emerging Markets ETF (EEM), and Petrobras(PBR)] and to establish Jan2011 covered calls positions. The detailed transactions history for each position as well as some possible results for each of these investments are as follows:

1. Domtar Corp.(UFS) -- Continuation
The transactions history is as follows:
11/22/2010 Bought 300 UFS @ $78.20
11/22/2010 Sold 3 UFS Dec2010 $80.00 Calls @ $2.35
12/18/2010 Dec2010 Options Expired
Note: The price of UFS was $76.16 upon Dec2010 options expiration.
12/21/2010 Sold 3 UFS Jan2011 $80.00 Calls @ $1.85
Note: The price of UFS was $77.94 when these options were sold.

Two possible overall performance results(including commissions) for the Domtar Corp.(UFS)
transactions would be as follows:
Stock Purchase Cost: $23,468.95
= ($78.20*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,237.60
= (300*($2.35+$1.85) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UFS unchanged at $77.94): $-86.95
= ($77.94-$78.20)*300 - $8.95 commissions
(c) Capital Appreciation (If UFS assigned at $80.00): +$531.05
= ($80.00-$78.20)*300 - $8.95 commissions

Total Net Profit(If UFS price unchanged at $77.94): +$1,150.65
= (+$1,237.60 +$0.00 -$86.95)
Total Net Profit(If UFS assigned at $80.00): +$1,768.65
= (+$1,237.60 +$0.00 +$531.05)

Absolute Return (If UFS unchanged at $77.94): +4.9%
= +$1,150.65/$23,468.95
Annualized Return If Unchanged (ARIU): +29.3%
= (+$684.85/$23,468.95)*(365/61 days)

Absolute Return if Stock Assigned at $80.00: +45.1%
= +$1,768.65/$23,468.95
Annualized Return If Assigned (ARIA): +73.3%
= (+$1,768.65/$23,468.95)*(365/61 days)


2. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
10/27/2010 Bought 300 EEM @ $45.55
10/27/2010 Sold 3 EEM Nov2010 $46.00 Calls @ $.99
11/19/2010 Buy-to-Close (BTC) 3 EEM Nov2010 $46.00 Call Options @ $.38
11/19/2010 Sell-to-Open (STO) 3 EEM Dec2010 $47.00 Call Options @ $1.02
12/18/2010 Dec2010 Options Expired
Note: The price of EEM was $46.40 upon Dec2010 options expiration.
12/21/2010 Sold 3 EEM Jan2011 $47.00 Calls @ $.77
Note: The price of EEM was $46.43 when these options were sold.
12/21/2010 Distribution Income $107.83 = $.35942 * 300 shares
12/29/2010 Distribution Income $7.54 = $.02512 * 300 shares

Two possible overall performance results(including commissions) for the EEM transactions would be as follows:
Stock Purchase Cost: $13,673.95
= ($45.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$686.40
= (300*($.99-$.38+$1.02+$.77) - 3*$11.20 commissions)
(b) Distribution Income: +$115.37 = $107.83 + $7.54
(c) Capital Appreciation (If EEM price unchanged at $46.43):
+$255.05 = ($46.43-$45.55)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$426.05
= ($47.00-$45.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.43): +$1,056.82
= (+$686.40 +$115.37 +$255.05)
Total Net Profit(If stock assigned at $47.00): +$1,227.81
= (+$686.40 +$115.37 +$426.05)

Absolute Return if Unchanged at $46.43: +7.7%
= +$1,056.82/$13,673.95
Annualized Return If Unchanged (ARIU): +32.4%
= (+$1,056.82/$13,673.95)*(365/87 days)

Absolute Return if Assigned at $47.00: +9.0%
= +$1,227.81/$13,673.95
Annualized Return If Assigned (ARIA): +37.7%
= (+$1,227.81/$13,673.95)*(365/87 days)


3. 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 Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/03/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.
12/07/2010 $41.42 Dividend = ($.138 Net Dividend x 300 shares)
12/18/2010 Dec2010 Options Expired
Note: The price of PBR was $34.08 upon Dec2010 options expiration.
12/21/2010 Sold 3 PBR Jan2011 $35.00 Calls @ $.59
Note: The price of PBR was $34.18 when these options were sold.
01/06/2011 $61.03 Dividend = ($.203 Net Dividend x 300 shares)



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: +$1,289.60
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590) - 7*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR unchanged at $34.18): $-1,556.95
= ($34.18-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $35.00): -$1,310.95
= ($35.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $34.18): -$80.75
= (+$1,289.60 +$186.60 -$1,556.95)
Total Net Profit(If PBR assigned at $35.00): +$165.25
= (+$1,289.60 +$186.60 -$1,310.95)

Absolute Return (If PBR unchanged at $33.05): -0.7%
= -$80.75/$11,810.95
Annualized Return If Unchanged (ARIU): -1.2%
= (-$80.75/$11,810.95)*(365/215 days)

Absolute Return (If Assigned at $35.00): +1.4%
= +$165.25/$11,810.95
Annualized Return If Assigned: +2.4%
= (+$165.25/$11,810.95)*(365/215 days)

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