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Thursday, August 25, 2011

Continuation Transaction -- Microsoft Corp.

Today, a decision was made to retain the shares held in Microsoft Corp.(MSFT) and to establish an Oct2011 covered calls position. The detailed transactions as well as some possible results for these investment are as follows:

1. Microsoft Corp.(MSFT) -- Continuation
The transactions history is as follows:
01/24/2011 Bought 700 MSFT @ $28.15
02/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
01/24/2011 Sell-to-Open(STO) 7 MSFT Feb2011 $29.00 CallS @ $.40
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 7 MSFT Apr2011 $26.00 Calls @ $.31
Note: the price of MSFT was $25.47 today when the options were sold.
04/16/2011 Apr2011 MSFT options expired.
04/26/2011 Sold 7 MSFT May2011 $26.00 Calls @ $.66
Note: The price of MSFT was $26.06 when these call options were sold.
05/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
05/31/2011 Sold 7 MSFT Jul2011 $26.00 Calls @ $.29
Note: The price of MSFT was $25.05 when these call options were sold.
07/14/2011 Buy-to-Close (BTC) 7 MSFT Jul2011 $26.00 Call Options @ $.50
07/14/2011 Sell-to-Open (STO) 7 MSFT Aug2011 $27.00 Call Options @ $.56
Note: The price of MSFT was $26.52 when these call options were sold.
08/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
08/20/2011 Aug2011 MSFT options expired.
08/25/2011 Sold 7 MSFT Oct2011 $26.00 Calls @$.74
Note: The price of MSFT was $25.07 when these call options were sold.

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $19,713.95
= ($28.15*700+$8.95 commission)

Net Profit:
(a) Options Income: +$1,636.80
= 700*($.40+$.31+$.66+$.29-$.50+$.56+$.74) - 6*$14.20 commissions)
(b) Dividend Income: +$336.00 ($.16/share * 700 shares * 3 payments)
(c) Capital Appreciation (If stock price unchanged at $25.07): -$2,164.95
= ($25.07-$28.15)*700 - $8.95 commissions
(c) Capital Appreciation (If assigned at $26.00): -$1,513.95
= ($26.00-$28.15)*700 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.07): -$192.15
= (+$1,636.80 +$336.00 -$2,164.95)
Total Net Profit(If stock assigned at $26.00): +$458.85
= (+$1,636.80 +$336.00 -$1,513.95)

1. Absolute Return if Stock Unchanged at $25.07: -1.0%
= -$192.15/$19,713.95
An-ualized Return If Unchanged (ARIU): -1.3%
= (-$192.15/$19,713.95)*(365/271 days)

2. Absolute Return if Assigned at $26.00: +2.3%
= +$458.85/$19,713.95
Annualized Return If Assigned (ARIA): +3.1%
= (+$458.85/$19,713.95)*(365/271 days)

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