Friday, January 21, 2011

Roll Up and Out -- Petrobras (PBR) Covered Calls

Today is Jan2011 options expiration Friday. With the three Petrobras (PBR) Jan2011 $35.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Feb2011 expiration at the $37.00 strike price. The three Jan2011 $35.00 calls were bought back for $1.35 (only $.02 of time value remaining in each call option) and replaced by selling three out-of-the-money Feb2011 $37.00 strike options at $.89 as follows:
01/21/2011 Buy-to-Close (BTC) 3 PBR Jan2011 $35.00 Call Options @ $1.35
01/21/2011 Sell-to-Open (STO) 3 PBR Feb2011 $37.00 Call Options @ $.89
The price of PBR was $1.33 today when these transactions were made.

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

1. Petrobras (PBR) -- Continuation Transaction
The transactions history to date for Petrobras (PBR) is as follows:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 today when these options were sold.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/03/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.
12/07/2010 $41.42 Dividend = ($.138 Net Dividend x 300 shares)
12/18/2010 Dec2010 Options Expired
Note: The price of PBR was $34.08 upon Dec2010 options expiration.
12/21/2010 Sold 3 PBR Jan2011 $35.00 Calls @ $.59
Note: The price of PBR was $34.18 when these options were sold.
01/06/2011 $61.03 Dividend = ($.203 Net Dividend x 300 shares)
01/21/2011 Buy-to-Close (BTC) 3 PBR Jan2011 $35.00 Call Options @ $1.35
01/21/2011 Sell-to-Open (STO) 3 PBR Feb2011 $37.00 Call Options @ $.89


Two possible overall performance results(including commissions) for the Petrobras (PBR) transactions would be as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,140.40
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89) - 8*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR unchanged at $36.33): $-911.95
= ($36.33-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $37.00): -$710.95
= ($37.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $36.33): +$415.05
= (+$1,140.40 +$186.60 -$911.95)
Total Net Profit(If PBR assigned at $37.00): +$616.05
= (+$1,140.40 +$186.60 -$710.95)

Absolute Return (If PBR unchanged at $36.33): +3.5%
= +$415.05/$11,810.95
Annualized Return If Unchanged (ARIU): +5.3%
= (+$415.05/$11,810.95)*(365/243 days)

Absolute Return (If Assigned at $37.00): +5.2%
= +$616.05/$11,810.957Annualized Return If Assigned: +7.8%
= (+$616.05/$11,810.95)*(365/243 days)

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