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Monday, December 27, 2010

Establish Intel Corp. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Intel Corp.(INTC) covered calls as follows:

Established Intel Corp.(INTC) Covered Calls for Jan2011 as follows:
12/27/2010 Bought 300 INTC @ $20.71
12/27/2010 Sell-to-Open(STO) 3 INTC Jan2011 $21.00 CallS @ $.40
Note: The price of INTC was $20.78 today when these options were sold.

Intel Corp.(INTC) is the world's leading semiconductor producer and has been the industry leader since the inception of the personal computer. Intel produces products for many facets of advanced technology including flash memory products, motherboards, wired and wireless connectivity products and networked storage products. Its 2009 annual sales exceeded $35 billion and should approximate $40 billion this year. This sales increase coupled with an operating margin above 60% should enable Intel to achieve all-time record earnings per share of approximately $2.00 this year. Applying a P/E of 13 (historically low for Intel) against these earnings implies a very reasonable target price potential of $26, which represents an attractive 25% annualized return potential for the underlying stock over the next year.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 18.10 is well above the desired threshold of 16.0 points for a new investment.

Note: For expanded view, left click on the spreadsheet above.

Two possible overall performance results(including commissions) for the INTC transactions would be as follows:
Stock Purchase Cost: $6,221.95
= ($20.71*300+$8.95 commission)

Net Profit:
(a) Options Income: +$108.80
= 300*$.40 - $11.20 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $20.71):
-$8.95 = ($20.71-$20.71)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $21.00): +$78.05
= ($21.00-$20.71)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.71): +$99.85
= (+$108.80 +$0.00 -$8.95)
Total Net Profit(If stock price assigned at $21.00): +$186.85
= (+$108.80 +$0.00 +$78.05)

Absolute Return if Unchanged at $20.71: +1.6%
= +$99.85/$6,221.95
Annualized Return If Unchanged (ARIU): +22.5%
= (+$99.85/$6,221.95)*(365/26 days)

Absolute Return if Assigned at $21.00: +3.0%
= +$186.85/$6,221.95
Annualized Return If Assigned (ARIA): +42.2%
= (+$186.85/$6,221.95)*(365/26 days)

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