Wednesday, December 22, 2010

Research in Motion Ltd.(RIMM) -- Continuation Transaction

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. Yesterday, a decision was made to retain three of these four positions [Domtar Corp.(UFS), iShares MSCI Emerging Markets ETF (EEM), and Petrobras(PBR)] and to establish Jan2011 covered calls positions. Today, a decision was made to retain the one remaining stock (Research in Motion) and to establish a Jan2011 covered calls position against the 300 shares. The detailed transactions history for this position since its inception as well as a possible result for this investment is as follows:

1. Research in Motion LTD.(RIMM) -- Continuation
The transactions history is as follows:
09/23/2010 Bought 300 RIMM @ $46.55
09/23/2010 Sold 3 RIMM Oct2010 $47.50 Calls @ $1.64
10/13/2010 Buy-to-Close (BTC) 3 RIMM Oct2010 $47.50 Call Options @ $2.60
10/13/2010 Sell-to-Open (STO) 3 RIMM Nov2010 $50.00 Call Options @ $2.44
11/16/2010 Buy-to-Close (BTC) 3 RIMM Nov2010 $50.00 Call Options @ $6.15
11/16/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $57.50 Call Options @ $3.05
12/06/2010 Buy-to-Close (BTC) 3 RIMM Dec2010 $57.50 Call Options @ $6.60
12/06/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $62.50 Call Options @ $3.20
12/18/2010 Dec2010 Options Expired
Note: The price of RIMM was $60.20 upon Dec2010 options expiration.
12/21/2010 Sold 3 RIMM Jan2011 $57.50 Calls @ $2.60
Note: The price of RIMM was $58.44 when these options were sold.

A possible performance result(including commissions) for these Research In Motion Ltd.(RIMM) transactions would be as follows:
Stock Purchase Cost: $13,973.95
= ($46.55*300+$8.95 commission)

Net Profit:
(a) Options Income: -$804.40
= 300*($1.64-$2.60+$2.44-$6.15+$3.05-$6.60+$3.20+$2.60) - 7*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $57.50): +$3,276.05
= ($57.50-$46.55)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $62.50): +$2,471.65
= (-$804.40 +$0.00 +$3,276.05)

Absolute Return if Assigned at $57.50: +17.7%
= +$2,471.65/$13,973.95
Annualized Return If Assigned (ARIA): +53.4%
= (+$2,471.65/$13,973.95)*(365/121 days)

1 comment:

  1. Thank you for your blog. I have a question related to taxes on profits/losses on these trades that you make.

    It appears, based on what I've read and my accountants advice, that selling non-qualified covered calls (calls that have under 30-days to expiration or are deep-in-the-money) is classified by the IRS as a straddle trade for tax purposes.

    How will you handle the buy-to-close for a loss in these straddles? It seems you wont be able to claim the loss until and unless you close the other side of the straddle, i.e. sell the stock.