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Monday, September 19, 2011

Establish Apple Inc., International Paper, and Peabody Energy Covered Calls

Today, new covered calls positions were established with Apple Inc.(AAPL), International Paper (IP), and Peabody Energy (BTU). Previous covered calls positions with Sep2011 expirations in Apple Inc. and International Paper Co. were in-the-money at expiration and the options were assigned and the stock called away. Upon re-considering the current prices of both Apple and International Paper over the weekend, it was decided to re-purchase shares in both companies and to establish Oct2011 covered calls positions. A third covered calls position was also initiated today in Peabody Energy Corp.(BTU). The details for each is presented below:

1. Apple Inc.(AAPL)
09/19/2011 Bought 100 shares AAPL at $396.544
09/19/2011 Sold 1 AAPL Oct2011 $410 Call Option @ $10.15

Two possible overall performance results(including commissions) for this Apple Inc.(AAPL) transaction would be as follows:
Stock Purchase Cost: $39,663.35
= ($396.544*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,005.30
= (100*$10.15 - $9.70 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $396.544 at expiration): -$8.95
= ($396.544-$396.544)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $410.00): +$1,336.65
= ($410.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$996.35
= (+$1,005.30 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $410.00): +$2,341.95
= (+$1,005.30 +$0.00 +$1,336.65)

1. Absolute Return (If stock unchanged at $396.544 at expiration): +2.5%
= +$996.35/$39,663.35
Annualized Return (If stock unchanged at expiration): +26.2%
= (+$996.35/$39,663.35)*(365/35 days)

2. Absolute Return (If stock assigned at $410.00 at expiration): +5.9%
= +$2,341.95/$39,663.35
Annualized Return (If stock assigned at $410.00): +61.6%
= (+$2,341.95/$39,663.35)*(365/35 days)


2. International Paper Co.(IP)

09/19/2011 Bought 400 shares IP at $26.978
09/19/2011 Sold 4 IP Oct2011 $28 Calls @ $1.18

Two possible overall performance results(including commissions) for this International Paper Co.(IP) transaction would be as follows:
Stock Purchase Cost: $10,800.15
= ($26.978*400+$8.95 commission)

Net Profit:
(a) Options Income: +$463.05
= (400*$1.18 - $11.95 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $26.978 at expiration): -$8.95
= ($26.978-$26.978)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $28.00): +$399.85
= ($28.00-$26.978)*400 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$454.10
= (+$463.05 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $28.00): +$862.90
= (+$463.05 +$0.00 +$399.85)

1. Absolute Return (If stock unchanged at $26.978 at expiration): +4.2%
= +$454.10/$10,800.15
Annualized Return (If stock unchanged at expiration): +43.8%
= (+$454.10/$10,800.15)*(365/35 days)

2. Absolute Return (If stock assigned at $28.00 at expiration): +8.0%
= +$862.90/$10,800.15
Annualized Return (If stock assigned at $28.00): +83.3%
= (+$862.90/$10,800.15)*(365/35 days)


3. Peabody Energy Corp.(BTU)

09/19/2011 Bought 300 shares BTU at $44.208
09/19/2011 Sold 3 BTU Oct2011 $47 Calls @ $1.67

Two possible overall performance results(including commissions) for this Peabody Energy Corp.(BTU) transaction would be as follows:
Stock Purchase Cost: $13,271.35
= ($44.208*300+$8.95 commission)

Net Profit:
(a) Options Income: +$489.80
= (300*$1.67 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $44.208 at expiration): -$8.95
= ($44.208-$44.208)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$828.65
= ($47.00-$44.208)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$480.85
= (+$489.80 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $47.00): +$1,318.45
= (+$489.80 +$0.00 +$828.65)

1. Absolute Return (If stock unchanged at $44.208 at expiration): +3.6%
= +$480.85/$13,271.35
Annualized Return (If stock unchanged at expiration): +37.8%
= (+$480.85/$13,271.35)*(365/35 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +9.9%
= +$1,318.45/$13,271.35
Annualized Return (If stock assigned at $47.00): +103.6%
= (+$1,318.45/$13,271.35)*(365/35 days)

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