Thursday, July 21, 2011

Covered Call Continuation Transaction -- ProShares UltraShort 20+ Years Treasury ETF (TBT)

The Jul2011 covered calls position in ProShares UltraShort 20+ Years Treasury ETF (TBT) expired last Friday. Today, a decision was made to retain the 200 shares in ProShares UltraShort 20+ Years Treasury ETF (TBT) in the Covered Calls Advisor Portfolio and to re-establish a covered calls position with an Aug2011 expiration and at the $34.00 strike price. The detailed transactions history for this TBT position as well as possible results for this investment are as follows:

1. ProShares UltraShort 20+ Years Treasury ETF (TBT) -- Continuation
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.
07/16/2011 Jul2011 TBT options expired.
07/21/2011 Sold 2 TBT Aug2011 $34.00 Calls @$.77
Note: The price of TBT was $33.28 when these call options were sold.

Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$272.67
= 200*($.36+$.39+$.77) - 3*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $33.28):
-$502.95 = ($33.28-$35.75)*200 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $34.00): -$358.95
= ($34.00-$35.75)*200 - $8.95 commissions

Total Net Profit(If TBT unchanged at $33.28): -$230.30
= (+$272.65 +$0.00 -$502.95)
Total Net Profit(If TBT exercised at $34.00): -$86.30
= (+$272.65 +$0.00 -$358.95)

Absolute Return if Unchanged at $33.28: -3.2%
= -$230.30/$7,158.95
Annualized Return If Unchanged (ARIU) -10.7%
= (-$230.30/$7,158.95)*(365/110 days)

Absolute Return if Assigned at $34.00: -1.2%
= -$86.30/$7,158.95
Annualized Return If Assigned (ARIA) -4.0%
= (-$86.30/$7,158.95)*(365/110 days)

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