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Tuesday, December 14, 2010

Roll Up and Out -- Microsoft Corp.(MSFT) Covered Calls

Today, with the five Microsoft Corp.(MSFT) Dec2010 $26.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Jan2011 expiration at the $27.50 strike price. The five Dec2010 $26.00 calls were bought back for $1.43 (only $.02 of time value remaining in each call option) and replaced by selling five slightly-out-of-the-money Jan2011 $27.50 strike options at $.70 as follows:
12/14/2010 Buy-to-Close (BTC) 5 MSFT Dec2010 $26.00 Call Options @ $1.43
12/14/2010 Sell-to-Open (STO) 5 MSFT Jan2011 $27.50 Call Options @ $.70
The price of MSFT was $27.41 today when this debit-spread transaction was made.

The overall transactions history as well as two possible return-on-investment results are detailed below:

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.
12/14/2010 Buy-to-Close (BTC) 5 MSFT Dec2010 $26.00 Call Options @ $1.43
12/14/2010 Sell-to-Open (STO) 5 MSFT Jan2011 $27.50 Call Options @ $.70
Note: The price of MSFT was $27.41 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: +$318.80
= (500*($.44+$.49-$.32+$.47+$.44-$1.43+$.70) - 6*$12.70 commissions)
(b) Dividend Income: +$145.00 = ($.13 * 500 shares + $.16 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $27.41):
+$961.05 = ($27.41-$25.47)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $27.50): +$1,006.05
= ($27.50-$25.47)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $27.41): +$1,424.85
= (+$318.80 +$145.00 +$961.05)
Total Net Profit(If stock assigned at $27.50): +$1,469.85
= (+$318.80 +$145.00 +$1,006.05)

Absolute Return if Unchanged at $27.41: +11.2%
= +$1,424.85/$12,743.95
Annualized Return If Unchanged (ARIU): +22.3%
= (+$1,424.85/$12,743.95)*(365/183 days)

Absolute Return if Assigned at $27.50: +11.5%
= +$1,469.85/$12,743.95
Annualized Return If Assigned (ARIA): +23.0%
= (+$1,469.85/$12,743.95)*(365/183 days)

2 comments:

  1. Nice post, kind of drawn out though. Really good subject matter though.

    ReplyDelete
  2. I agree with what you did, but this doesn't seem to follow your rolling rules?

    ReplyDelete