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Saturday, July 23, 2011

Closed -- Freeport McMoRan Copper and Gold, Inc. Weekly Covered Calls Position

This past Monday, the Covered Calls Advisor established a new covered calls position in Freeport McMoRan Copper and Gold with a one-week options expiration date of July 22, 2011. The position transactions and the results are detailed below:

1. Freeport McMoRan Copper and Gold Inc.(FCX)
The transactions were as follows:
07/18/2011 Bought 200 FCX @ $54.95
07/18/2011 Sold 2 FCX Jul 22, 2011 $52.50 Calls @ $2.88
Note: The price of FCX was $54.98 when the options were sold.
07/23/2011 FCX options closed in-the-money and stock assigned at $52.50 strike price.
Note: The closing price of FCX at expiration was $55.67.

The overall performance result(including commissions) for this FCX covered calls position was follows:
Stock Purchase Cost: $10,998.95
= ($54.95*200+$8.95 commission)

Net Profit:
(a) Options Income: +$565.55
= (200*$2.88 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $52.50): -$498.95
= ($52.50-$54.95)*200 - $8.95 commissions

Total Net Profit(FCX assigned at $52.50): +$66.60
= (+$565.55 +$0.00 -$498.95)

Absolute Return (FCX stock Assigned at $52.50): +0.6%
= +$66.60/$10,998.95
Annualized Return: +44.2%
= (+$66.60/$10,998.95)*(365/5 days)

As you might recall, the Covered Calls Advisor invests almost exclusively in Monthly positions. This Weekly position was established on an experimental basis primarily to begin to evaluate whether Weeklies should have a more significant role in the Covered Calls Advisor Portfolio (CCAP). Despite the good result achieved with this particular FCX Weekly, this advisor has mixed feelings about seeking Weeklies as a part of the portfolio. The most enticing aspect of Weeklies is the prospect of capturing a significantly higher options income per day (i.e. higher theta) than is available from a comparable Monthly. However, this advantage is significantly mitigated by the increased commission costs frequency (i.e. 4 or 5 option positions sold per month instead of only one). Also, this advisor is significantly more comfortable with making a monthly forecast of the stock market's direction (i.e. Overall Market Meter monthly forecast). It seems close to impossible to forecast the market with any degree of confidence on a weekly basis. Thus, this advisor noticed that with this FCX Weekly postion, a more conservative (moderately in-the-money) position was established, whereas most other Monthly positions in the CCAP had been established slightly out-of-the-money which is consistent with the Covered Calls Advisor's current Overall Market Meter outlook of slightly bullish. Finally, this advisor has been investing successfully via Monthly covered calls for decades now, so there is a personal comfort level with Monthlies that is firmly entrenched. So, the Covered Calls Advisor will continue to experiment occasionally with Weeklies, but for now will continue to invest almost exclusively in Monthlies.

If you have any comments or questions, please feel free to submit them -- they are always welcomed. Click the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site.

Jeff

1 comment:

  1. Jeff,
    Very interesting trade and an excellent discussion. Thanks!

    ReplyDelete