Wednesday, December 1, 2010

Microsoft Corporation (MSFT) -- Continuation Transaction

Today, a decision was made to retain the 500 shares of Microsoft Corporation (MSFT) and to establish a Dec2010 covered calls position. The transactions history for MSFT as well as some possible results for this investment is as follows:

1. Microsoft Corporation (MSFT) -- Continuation Transaction
The transactions history to date for Microsoft Corporation (MSFT) is as follows:
07/23/2010 Bought 500 MSFT @ $25.47
07/23/2010 Sold 5 MSFT Aug2010 $26.00 Calls @ $.44
08/17/2010 Ex-Dividend $65.00 = $.13 * 500 shares
08/21/2010 Aug2010 Options Expired
Note: The closing price of MSFT was $24.23 on expiration Friday.
09/03/2010 Sold 5 MSFT Oct2010 $25.00 Call Options @ $.49
Note: The price of MSFT was $24.31 today when these options were sold.
10/15/2010 Buy-to-Close (BTC) 5 MSFT Oct2010 $25.00 Call Options @ $.32
10/15/2010 Sell-to-Open (STO) 5 MSFT Nov2010 $26.00 Call Options @ $.47
11/16/2010 Ex-Dividend $80.00 = $.16 * 500 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of MSFT was $25.69 on expiration Friday.
12/01/2010 Sell-to-Open (STO) 5 MSFT Dec2010 $26.00 Call Options @ $.44
Note: The price of MSFT was $25.95 today when these options were sold.

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $12,743.95
= ($25.47*500+$8.95 commission)

Net Profit:
(a) Options Income: +$696.50
= (500*($.44+$.49-$.32+$.47+$.44) - 5*$12.70 commissions)
(b) Dividend Income: +$145.00 = ($.13 * 500 shares + $.16 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $25.95):
+$231.05 = ($25.95-$25.47)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $26.00): +$256.05
= ($26.00-$25.47)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.95): +$1,072.55
= (+$696.50 +$145.00 +$231.05)
Total Net Profit(If stock assigned at $26.00): +$1,097.55
= (+$696.50 +$145.00 +$256.05)

Absolute Return if Unchanged at $25.95: +8.4%
= +$1,072.55/$12,743.95
Annualized Return If Unchanged (ARIU): +20.8%
= (+$1,072.55/$12,743.95)*(365/148 days)

Absolute Return if Assigned at $26.00: +8.6%
= +$1,097.55/$12,743.95
Annualized Return If Assigned (ARIA): +21.2%
= (+$1,097.55/$12,743.95)*(365/148 days)

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