Thursday, September 1, 2011

Continuation Transaction -- ProShares UltraShort 20+ Year Treasury ETF

Today, a decision was made to retain the shares held in ProShares UltraShort 20+ Year Treasury ETF (TBT) and to establish a Sep2011 covered calls position. The detailed transactions as well as some possible results for this investment are as follows:

1. ProShares UltraShort 20+ Year Treasury ETF (TBT) -- Continuation
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.
07/16/2011 Jul2011 TBT options expired.
07/21/2011 Sold 2 TBT Aug2011 $34.00 Calls @$.77
Note: The price of TBT was $33.28 when these call options were sold.
08/20/2011 Aug2011 Options Expired
09/01/2011 Sold 2 TBT Sep2011 $26.00 Calls @ $.68
Note: The price of TBT was $25.45 when these call options were sold.


Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$398.22
= 200*($.36+$.39+$.77+$.68) - 4*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $25.45):
-$2,068.95 = ($25.45-$35.75)*200 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $26.00): -$1,958.95
= ($26.00-$35.75)*200 - $8.95 commissions

Total Net Profit(If TBT unchanged at $25.45): -$1,670.73
= (+$398.22 +$0.00 -$2,068.95)
Total Net Profit(If TBT exercised at $26.00): -$1,560.73
= (+$398.22 +$0.00 -$1,958.95)

Absolute Return if Unchanged at $25.45: -23.3%
= -$1,670.73/$7,158.95
Annualized Return If Unchanged (ARIU) -61.7%
= (-$1,670.73/$7,158.95)*(365/138 days)

Absolute Return if Assigned at $26.00: -21.8%
= -$1,560.73/$7,158.95
Annualized Return If Assigned (ARIA) -57.7%
= (-$1,560.73/$7,158.95)*(365/138 days)

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