Friday, August 26, 2011

Continuation Transaction -- Mylan Inc.

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

1. Mylan Inc.(MYL) -- Continuation
The transactions history is as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.
08/20/2011 Options assigned and 500 shares purchased at $23.00 each.
08/26/2011 Sold 5 MYL Sep2011 $20.00 Calls @$.55
Note: The price of MYL was $19.32 when these call options were sold.


Two possible overall performance results(including commissions) for the Mylan Inc.(MYL) transactions would be as follows:
100% Cash-Secured Cost Basis: $11,500.00
= $23.00*500

Net Profit:
(a) Options Income: +$779.60
= ($1.06+$.55)*500 shares - 2*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $19.32 at expiration):
-$1,848.95 = ($19.32-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MYL stock above $20.00 at Sep2011 expiration):
-$1,508.95 = ($20.00-$23.00)*500 -$8.95 commissions

Total Net Profit(If stock price unchanged at $19.32: -$1,069.35
= (+$779.60 +$0.00 -$1,848.95)
Total Net Profit(If stock price above $23.00 at Sep2011 options expiration): -$729.35
= (+$779.60 +$0.00 -$1,508.95)

1. Absolute Return if Unchanged at $19.32: -9.3%
= -$1,069.35/$11,500.00
Annualized Return If Unchanged (ARIU): -55.6%
= (-$1,069.35/$11,500.00)*(365/61 days)

1. Absolute Return if stock price above $23.00 and hence is assigned at Sep2011 options expiration: -6.3%
= -$729.35/$11,500.00
Annualized Return if Assigned (ARIA): -37.9%
= (-$729.35/$11,500.00)*(365/61 days)

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