Wednesday, August 24, 2011

Continuation Transaction -- Best Buy Corp.

Today, a decision was made to retain the shares held in Best Buy Corp.Inc.(BBY) and to establish a Sep2011 covered calls position. The detailed transactions as well as some possible results for these investment are as follows:

1. Best Buy Corp. Inc.(BBY) -- Continuation
The transactions history is as follows:
01/24/2011 Bought 300 BBY @ $35.13
01/24/2011 Sell-to-Open(STO) 3 BBY Feb2011 $36.00 Calls @ $.57
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 3 BBY Apr2011 $34.00 Calls @ $.49
Note: the price of BBY was $31.92 today when the options were sold.
04/16/2011 Apr2011 BBY options expired.
04/26/2011 Sold 3 BBY May2011 $31.00 Calls @ $.60
Note: The price of BBY was $30.59 when these call options were sold.
05/20/2011 Bought-to-Close(BTC) 3 BBY May3011 $31.00 Calls @ $.36
Note: The price of BBY was $31.31 when the options were bought back.
05/20/2011 Sell-to-Open(STO) 3 BBY Jun2011 $32.00 Calls @ $.94
Note: The price of BBY was $31.43 when these options were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of BBY was $31.01 upon options expiration.
06/28/2011 Sold 3 BBY Aug2011 $33.00 Calls @ $.83
Note: price of BBY stock was $31.90 when these options were sold.
08/20/2011 Aug2011 BBY options expired.
08/24/2011 Sold 3 BBY Sep2011 $25.00 Calls @$1.32
Note: The price of BBY was $24.73 when these call options were sold.

Two possible overall performance results(including commissions) for the Best Buy Corp.(BBY) transactions would be as follows:
Stock Purchase Cost: $10,547.95
= ($35.13*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,238.60
= (300*($.57+$.49+$.60-$.36+$.94+$.83+$1.32) - 7*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $24.73):
-$3,128.95 = ($24.73-$35.13)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $25.00): -$3,047.95
= ($25.00-$35.13)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.73): -$1,890.35
= (+$1,238.60 +$0.00 -$3,128.95)
Total Net Profit(If stock assigned at $25.00): -$1,809.35
= (+$1,238.60 +$0.00 -$3,047.95)

1. Absolute Return if Unchanged at $24.73: -17.9%
= -$1,890.35/$10,547.95
Annualized Return If Unchanged (ARIU): -27.7%
= (-$1,890.35/$10,547.95)*(365/236 days)

2. Absolute Return if Assigned at $25.00: -17.2%
= -$1,809.35/$10,547.95
Annualized Return If Assigned (ARIA): -26.5%
= (-$1,809.35/$10,547.95)*(365/236 days)

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