Wednesday, August 24, 2011

Covered Calls Continuation Transactions -- International Paper Co. and Valero Energy Corp.

Upon Aug2011 options expiration, twelve covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for two stocks (International Paper Co. and Valero Energy Corp.) with Sep2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. 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
08/20/2011 Aug2011 IP options expired.
08/24/2011 Sold 5 IP Sep2011 $26.00 Calls @$.78
Note: The price of IP was $25.16 when these call options were sold.

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: +$1,389.20
= (500*($.82+$.38+$.90+$.78) - 4*$12.70 commissions)
(b) Dividend Income: $131.25 = $.2625 * 500 shares
(c) Capital Appreciation (If stock unchanged at $25.16 at expiration): -$3,058.95
= ($25.16-$31.26)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $26.00): -$2,638.95
= ($26.00-$31.26)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at $25.16 at expiration): -$1,538.50
= (+$1,389.20 +$131.25 -$3,058.95)
Total Net Profit (If stock assigned at $26.00): -$1,118.50
= (+$1,389.20 +$131.25 -$2,638.95)

1. Absolute Return (If stock unchanged at $25.16 at expiration): -9.8%
= -$1,538.50/$15,638.95
Annualized Return (If stock unchanged at expiration): -29.2%
= (-$1,538.50/$15,638.95)*(365/123 days)

2. Absolute Return (If stock assigned at $26.00 at expiration): -7.2%
= -$1,118.50/$15,638.95
Annualized Return (If stock assigned at $26.00): -21.2%
= (-$1,118.50/$15,638.95)*(365/123 days)


2. Valero Energy Corp.(VLO) -- Continuation
The transactions history is as follows:
07/20/2011 Bought 300 VLO @ $25.72
07/20/2011 Sold 3 VLO Aug2011 $26.00 Calls @ $.97
Note: the price of VLO was $25.81 when the call options were sold.
08/15/2011 Ex-dividend payment of $.05 per share.
08/20/2011 Aug2011 VLO options expired.
08/24/2011 Sold 3 VLO Sep2011 $22.00 Calls @$.56
Note: The price of VLO was $20.40 when these call options were sold.

Two possible overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions would be as follows:
Stock Purchase Cost: $7,724.95
= ($25.72*300+$8.95 commission)

Net Profit:
(a) Options Income: +$442.60
= ($.97+$.58)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05*300 shares (ex-dividend on 8/15/2011)
(c) Capital Appreciation (If stock price unchanged at $20.40): -$1,604.95
= ($20.40-$25.72)*300 - $8.95 commissions
(c) Capital Appreciation (If VLO above $22.00 at Sep2011 expiration): -$1,124.95
+($22.00-$25.72)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.40): -$1,147.35
= (+$442.60 +$15.00 -$1,604.95)
Total Net Profit(If stock price above $22.00 at Sep2011 options expiration): -$667.35= (+$442.60 +$15.00 -$1,124.95)

Absolute Return if Unchanged at $20.40: -14.6%
= -$1,124.95/$7,724.95
Annualized Return If Unchanged (ARIU): -90.1%
= (-$1,124.95/$7,724.95)*(365/59 days)

Absolute Return (If stock price above $22.00 at Sep2011 options expiration): -8.6%
= -$667.35/$7,724.95
Annualized Return (If stock price above $26.00 at expiration): -53.4%
= (-$667.35/$7,724.95)*(365/59 days)

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