Thursday, March 17, 2011

Freeport-McMoRan Copper and Gold Inc.(FCX) -- Continuation Transaction

Today the Covered Calls Advisor decided to establish a covered calls position against the 600 shares of Freeport-McMoRan Copper and Gold Inc. stock by selling 6 Apr2011 $55.00 calls. The detailed transactions history for this position as well as possible results for this investment are as follows:

Freeport-McMoRan Copper and Gold Inc.(FCX) -- Continuation
01/28/2011 Sold 3 Freeport-McMoRan Copper and Gold Inc.(FCX) Feb2011 $110.00 Puts @ $6.35
Note: the price of FCX stock was $106.10 when these puts were sold.
The 100% cash-secured put position in Freeport McMoRan (FCX) ended out-of-the-money and was assigned for purchase. The stock underwent a 2-for-1 split since original sale of the three FCX puts at $110.00 strike price. So the assignment was for the purchase of 600 shares of FCX stock at half of the the original $110 strike price value which is $55.00.
03/17/2011 Sold 6 FCX Apr2011 $55.00 Calls @ $1.43
Note: The price of FCX was $52.15 when these call options were sold.

Two possible overall performance results(including commissions) for the Freeport-McMoRan Copper and Gold Inc.(FCX) transactions would be as follows:
Stock Purchase Cost: $33,008.95
= ($110.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$2,648.70
= [300*$6.35 + 600*$1.43) - 3*$11.20 - 6*$13.45 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $52.15):
-$1,718.95 = ($52.15-$110.00/2)*600 - $8.95 commissions
(c) Capital Appreciation (If assigned at $55.00): -$8.95
= ($55.00-$110.00/2)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $52.15): +$929.75
= (+$2,648.70 +$0.00 -$1,718.95)
Total Net Profit(If stock assigned at $55.00): +$2,639.75
= (+$2,648.70 +$0.00 -$8.95)

Absolute Return if Unchanged at $52.15: +2.8%
= +$929.75/$33,008.95
Annualized Return If Unchanged (ARIU): +13.2%
= (+$929.75/$33,008.95)*(365/78 days)

Absolute Return if Assigned at $55.00: +8.0%
= +$2,639.75/$33,008.95
Annualized Return If Assigned (ARIA): +37.4%
= (+$2,639.75/$33,008.95)*(365/78 days)

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