Friday, January 14, 2011

Roll Up and Out -- Research in Motion Ltd.(RIMM) Covered Calls

Today, with the three Research in Motion Ltd.(RIMM) Jan2011 $57.50 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Feb2011 expiration at the $62.50 strike price. The three Jan2011 $57.50 calls were bought back for $7.62 (only $.08 of time value remaining in each call option) and replaced by selling three in-the-money Feb2011 $62.50 strike options at $4.14 as follows:
01/14/2011 Buy-to-Close (BTC) 3 RIMM Jan2011 $57.50 Call Options @ $7.62
01/14/2011 Sell-to-Open (STO) 3 RIMM Feb2011 $62.50 Call Options @ $4.14
The price of RIMM was $65.04 today when this debit-spread transaction was made.

1. Research in Motion (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
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.
01/14/2011 Buy-to-Close (BTC) 3 RIMM Jan2011 $57.50 Call Options @ $7.62
01/14/2011 Sell-to-Open (STO) 3 RIMM Feb2011 $62.50 Call Options @ $4.14
The price of RIMM was $65.04 today when this debit-spread transaction was made.

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: -$1,859.60
= 300*($1.64-$2.60+$2.44-$6.15+$3.05-$6.60+$3.20+$2.60-$7.62+$4.14) - 8*$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): +$2,916.45
= (-$1,859.60 +$0.00 +$4,776.05)

Absolute Return if Assigned at $62.50: +20.9%
= +$2,916.45/$13,973.95

Annualized Return If Assigned (ARIA): +51.1%
= (+$2,916.45/$13,973.95)*(365/149 days)

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