Wednesday, April 20, 2011

Petrobras ADR (PBR) -- Continuation Transaction

Last Friday was options expiration Friday for April 2011. The short options in Petrobras ADR (PBR) Apr2011 covered calls position with a $40.00 strike price expired worthless since PBR closed last Friday at $37.81, below the $40.00 strike price. Today the Covered Calls Advisor decided to retain the 300 shares in PBR and to establish a covered calls position by selling 3 May2011 $38.00 calls. The detailed transactions history for this position as well as possible results for this investment are as follows:

1. Petrobras ADR (PBR) -- Continuation Transaction
The transactions history to date for Petrobras ADR (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
02/18/2011 Buy-to-Close (BTC) 3 PBR Feb2011 $37.00 Call Options @ $.85
02/18/2011 Sell-to-Open (STO) 3 PBR Mar2011 $37.00 Call Options @ $1.67
03/18/2011 Buy-to-Close (BTC) 3 PBR Mar2011 $37.00 Call Options @ $2.19
03/18/2011 Sell-to-Open (STO) 3 PBR Apr2011 $40.00 Call Options @ $1.01
Note: The price of PBR was $39.23 when these options were sold.
04/16/2011 Apr2011 PBR Options Expired.
Note: the price of PBR was $37.81 upon options expiration.
04/20/2011 Sold 3 PBR May2011 $38.00 Calls @ $.87
Note: the price of PBR was $37.51 when these call options were sold.

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: +$1,248.60
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89-$.85+$1.67-$2.19+$1.01+$.87) - 12*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR price unchanged at $37.51): -$557.95
= ($37.51-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $38.00): -$410.95
= ($38.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR unchanged at $37.51): +$877.25
= (+$1,248.60 +$186.60 -$557.95)
Total Net Profit(If PBR assigned at $38.00): +$1,024.25
= (+$1,248.60 +$186.60 -$410.95)

Absolute Return (If Unchanged at $37.51): +7.4%
= +$877.25/$11,810.95
Annualized Return If Unchanged (ARIU): +8.1%
= (+$877.25/$11,810.95)*(365/334 days)

Absolute Return (If Assigned at $38.00): +8.7%
= +$1,024.25/$11,810.95)
Annualized Return If Assigned(ARIA): +9.5%
= (+$1,024.25/$11,810.95)*(365/334 days)

This covered calls history demonstrates that as a result of receiving monthly options income, covered calls can achieve a net profit even when the underlying equity declines somewhat from the original purchase price.

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