Tuesday, December 21, 2010

Establish Apple Inc.(AAPL) Covered Call

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of an Apple Inc.(AAPL) covered call as follows:

Established Apple Inc.(AAPL) Covered Call for Jan2011:
12/20/2010 Bought 100 AAPL @ $321.10
12/21/2010 Sold 1 AAPL Jan2011 $330.00 Call @ $6.10
Note: The call option was sold today when the AAPL stock was trading at $324.10.

Apple Inc. designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players, as well as sells various related software, services, peripherals, and networking solutions.
The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells various third-party Macintosh, iPhone, and iPod and now iPad compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative customers. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.

Apple is hitting on all cylinders with its: (1) ongoing growth of Macs, iPods, and iTunes; (2) accelerating growth in iPads and iPad applications; and (3) exciting new initiative with Apple TV.

Some possible overall performance results(including commissions) for the AAPL transactions would be as follows:
Stock Purchase Cost: $32,118.95
= ($321.10*100+$8.95 commission)

Net Profit:
(a) Options Income: +$600.30
= (100*$6.10 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $321.10):
-$8.95 = ($321.10-$321.10)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $330.00): +$881.05
= ($330.00-$321.10)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $321.10): +$591.35
= (+$600.30 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $330.00): +$1,481.35
= (+$600.30 +$0.00 +$881.05)

Absolute Return if Unchanged at $321.10: +20.4%
= +$591.35/$32,118.95
Annualized Return If Unchanged (ARIU) +10.6%
= (+$591.35/$32,118.95)*(365/33 days)

Absolute Return if Assigned at $330.00: +4.6%
= +$1,481.35/$32,118.95
Annualized Return If Assigned (ARIA): +51.0%
= (+$1,481.35/$32,118.95)*(365/33 days)