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Tuesday, July 19, 2011

Covered Calls Continuation Transactions

Upon Jul2011 options expiration, seven covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. On Monday, a decision was made to re-establish covered calls positions for two equities (iShares MSCI China ETF and Petrobras ADR) by selling call options to establish Aug2011 covered calls. Today, covered calls positions were re-established for four additional equities (China Mobile Ltd., International Paper Co., iShare Emerging Markets ETF, and Morgan Stanley) that had previously expired upon the Jul2011 options expiration. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. China Mobile Ltd.(CHL) -- Continuation
The transactions history is as follows:
02/23/2011 Bought 200 CHL @ $46.479
02/23/2011 Sold 2 CHL Mar2011 $47.50 Calls @ $.60
03/19/2011 Mar2011 Options Expired
03/30/2011 Sold 2 CHL May2011 $47.50 Calls @ $.55
Note: price of CHL was $46.22 when these options were sold.
05/10/2011 Ex-dividend payment of $.9237 per share.
05/21/2011 May2011 Options Expiration will occur.
05/31/2011 Sold 2 CHL Jul2011 $47.50 Calls @ $.35
Note: The price of CHL was $45.59 when these call options were sold.
07/16/2011 Jul2011 CHL options expired.
07/18/2011 Sold 2 CHL Aug2011 $47.50 Calls @$.55
Note: The price of CHL was $46.45 when these call options were sold.

Two possible overall performance results(including commissions) for the China Mobile Ltd ADR (CHL) transactions would be as follows:

Stock Purchase Cost: $9,304.75
= ($46.479*200+$8.95 commission)

Net Profit:
(a) Options Income: +$368.20
= ($.60 + $.55 + $.35 + $.55)*200 shares - 4*$10.45 commissions
(b) Dividend Income: +$184.74 = $.9237 * 200 shares
(c) Capital Appreciation (If stock price unchanged at $46.45): -$14.75
= ($46.45 -$46.479)*200 - $8.95 commissions
(c) Capital Appreciation (If CHL assigned at $47.50 at Aug2011 expiration): +$195.25
+($47.50 -$46.479)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.45): +$538.19
= (+$368.20 +$184.74 -$14.75)
Total Net Profit(If stock price above $47.50 at Aug2011 options expiration): +$748.19= (+$368.20 +$184.74 +$195.25)

Absolute Return if Unchanged at $46.45: +5.8%
= +$538.19/$9,304.75
Annualized Return If Unchanged (ARIU): +11.9%
= (+$538.19/$9,304.75)*(365/178 days)

Absolute Return (If stock assigned at $47.50 upon Aug2011 options expiration): +8.0%
= +$748.19/$9,304.75
Annualized Return if stock assigned at expiration (ARIA): +16.5%
= (+$748.19/$9,304.75)*(365/178 days)


2. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
05/17/2011 Bought 500 IP @ $31.26
05/17/2011 Sold 5 IP Jun2011 $32.00 Calls @ $.82
06/18/2011 Jun2011 Options Expired
Note: the price of IP was $26.57 upon options expiration.
06/21/2011 Sold 5 IP Jul2011 $30.00 Calls @ $.38
Note: price of IP stock was $28.56 when these options were sold.
07/16/2011 Jul2011 IP options expired.
07/18/2011 Sold 5 IP Aug2011 $30.00 Calls @$.90
Note: The price of IP was $29.79 when these call options were sold.
08/11/2011 Ex-Dividend of $.2625 per share

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $15,638.95
= ($31.26*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,011.90
= (500*($.82+$.38+$.90) - 3*$12.70 commissions)
(b) Dividend Income: $131.25 = $.2625 * 500 shares
(c) Capital Appreciation (If stock unchanged at $29.79 at expiration): -$743.95
= ($29.79-$31.26)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $30.00): -$638.95
= ($30.00-$31.26)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at $29.79 at expiration): +$399.20
= (+$1,011.90 +$131.25 -$743.95)
Total Net Profit (If stock assigned at $30.00): +504.20
= (+$1,011.90 +$131.25 -$638.95)

1. Absolute Return (If stock unchanged at $29.79 at expiration): +2.6%
= +$399.20/$15,638.95
Annualized Return (If stock unchanged at expiration): +9.8%
= (+$399.20/$15,638.95)*(365/95 days)

2. Absolute Return (If stock assigned at $30.00 at expiration): +3.2%
= +$504.20/$15,638.95
Annualized Return (If stock assigned at $30.00): +12.4%
= (+$504.20/$15,638.95)*(365/95 days)


3. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,344.20
= [500*($.83 +$.35+$.62+$.99) - 4*$12.70 commissions]
(b) Distribution Income: $230.46 = $.46092 * 500 shares
(c) Capital Appreciation (If EEM unchanged at $46.55 at expiration): -$638.95
= ($46.55-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): -$413.95
= ($47.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $46.55 at expiration): +$935.71
= (+$1,344.20 +$230.46 -$638.95)
Total Net Profit (If EEM assigned at $47.00): +$1,160.71
= (+$1,344.20 +$230.46 -$413.95)

1. Absolute Return (If stock unchanged at $46.55 at expiration): +3.9%
= +$935.71/$23,913.95
Annualized Return (If stock unchanged at expiration): +11.5%
= (+$935.71/$23,913.95)*(365/124 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +4.9%
= +$1,160.71/$23,913.95
Annualized Return (If stock assigned at $49.00): +14.3%
= (+$1,160.71/$23,913.95)*(365/124 days)


4. Morgan Stanley (MS) -- Continuation
The transactions history is as follows:
06/03/2011 Bought 300 MS @ $22.988
06/03/2011 Sold 3 MS Jul2011 $25.00 Calls @ $.26
Note: the price of MS was $23.14 when the call options were sold.
07/16/2011 Jul2011 MS options expired.
07/18/2011 Sold 3 MS Sep2011 $22.00 Calls @$.66
Note: The price of MS was $20.82 when these call options were sold.
07/27/2011 Ex-Dividend of $.05 per share


Two possible overall performance results(including commissions) for the Morgan Stanley transactions would be as follows:
Stock Purchase Cost: $6,905.35
= ($22.988*300+$8.95 commission)

Net Profit:
(a) Options Income: +$161.60
= 300*($.26+$.66) - 2*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05 * 300 shares
(c) Capital Appreciation (If MS unchanged at $20.82):
-$442.55 = ($20.82-$22.988)*300 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $22.00): -$305.35
= ($22.00-$22.988)*300 - $8.95 commissions

Total Net Profit(If MS unchanged at $20.82): -$265.95
= (+$161.60 +$15.00 -$442.55)
Total Net Profit(If MS exercised at $22.00): -$128.75
= (+$161.60 +$15.00 -$305.35)

Absolute Return if Unchanged at $20.82: -3.9%
= -$265.95/$6,905.35
Annualized Return If Unchanged (ARIU) -13.3%
= (-$265.95/$6,905.35)*(365/106 days)

Absolute Return if Assigned at $37.00: -1.9%
= -$128.75/$6,905.35
Annualized Return If Assigned (ARIA) -6.4%
= (-$128.75/$6,905.35)*(365/106 days)

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