Monday, December 6, 2010

Roll Up -- Research In Motion Ltd.(RIMM) Covered Calls

Today, with Research In Motion Ltd.(RIMM) stock priced at $63.38 and twelve days remaining until Dec2010 options expiration, the three existing Dec2010 $57.50 calls were bought back for $6.60 ($.72 of time value remaining in each call option) and then replaced by selling three in-the-money Dec2010 $62.50 strike options at $3.20 as follows:
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
The price of RIMM was $63.38 today when these transactions were executed.

This roll-up decision was made since the following two criteria established by the Covered Calls Advisor for a roll-up were satisfied:
- Roll up when the current equity price is more than 10% above the current strike price; and
- Roll (within the same expiration month) if more than 1 week (7 calendar days) until expiration. Roll out to the next expiration month if 1 week or less from the current expiration.

1. Research In Motion Ltd.(RIMM) -- Continuation Transaction
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

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: -$1,573.20
= 300*($1.64-$2.60+$2.44-$6.15+$3.05-$6.60+$3.20) - 6*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $62.50): +$4,776.05
= ($62.50-$46.55)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $62.50): +$3,202.85
= (-$1,573.20 +$0.00 +$4,776.05)

Absolute Return if Assigned at $62.50: +22.9%
= +$3,202.85/$13,973.95
Annualized Return If Assigned (ARIA): +97.3%
= (+$3,202.85/$13,973.95)*(365/86 days)

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