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Thursday, December 22, 2011

Continuation Transactions -- Citigroup Inc. and Morgan Stanley

Upon Dec2011 options expiration, all nine of the covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions in Citigroup Inc.(Symbol C) and Morgan Stanley (MS). The detailed transactions history for these positions as well as possible results are as follows:

1. Citigroup Inc.(C) -- Continuation
The transaction history is as follows:
10/26/2011 Sold 3 Citigroup, Inc.(C) Nov2011 $31.00 Put Options @ $1.96
Note: the price of Citi stock was $30.42 today when these puts were sold.
11/19/2011 Nov2011 Options Expired.
Note: the price of Citi stock was $26.28 upon options expiration.
11/30/2011 Sold 3 Dec2011 $27.00 call options @ $1.09
Note: the price of Citigroup stock was $26.61 when these options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Citigroup was $26.03 upon options expiration.
01/21/2011 Sold 3 Jan2012 $28.00 calls @$.99
Note: the price of Citi was $27.02 when these options were sold.

Two possible overall performance results(including commissions) for this Citigroup, Inc.(C) position would be as follows:
100% Cash-Secured Cost Basis: $9,300.00
= $31.00*300

Net Profit:
(a) Options Income: +$1,178.40
= ($1.96 + $1.09 + $.99) *300 shares - 3*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $27.02): -$1,202.95
= ($27.02-$31.00)*300 - $8.95 commissions
(c) Capital Appreciation (If Citigroup stock above $28.00 at Jan2012 expiration):
-$908.95
= ($28.00-$31.00) -$8.95 commissions

Total Net Profit(If stock price unchanged at $27.02): -$24.55
= (+$1,178.40 +$0.00 -$1,202.95)
Total Net Profit(If stock price above $28.00 at Jan2012 options expiration): +$269.45
= (+$1,178.40 +$0.00 -$908.95)

1. Absolute Return if Unchanged at $27.02: -0.3%
= -$24.55/$9,300.00
Annualized Return If Unchanged (ARIU): -1.1%
= (-$24.55/$9,300.00)*(365/87 days)

2. Absolute Return (If stock price above $28.00 at Jan2012 options expiration: +2.9%
= +$269.45/$9,300.00
Annualized Return (If stock price above $27.00 at expiration): +12.2%
= (+$269.45/$9,300.00)*(365/87 days)


2. Morgan Stanley (MS) -- Continuation
The transactions history is as follows:
10/26/2011 Sold 6 Morgan Stanley (MS) Nov2011 $17.00 Put Options @ $1.16
Note: the price of MS stock was $16.82 today when these puts were sold.
11/19/2011 Nov2011 MS put options exercised -- 600 shares MS purchased @ $17.00.
11/30/2011 Sold 6 MS Dec2011 $15.00 Calls @ $.44
Note: the price of MS was $14.18 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Morgan Stanley was $14.98 upon options expiration.
01/21/2011 Sold 6 Jan2012 $16.00 calls @$.69
Note: the price of MS was $15.39 when these options were sold.

Two possible overall performance results(including commissions) for this Morgan Stanley (MS) transaction would be as follows:
100% Cash-Secured Cost Basis: $10,200.00
= $17.00*600

Net Profit:
(a) Options Income: +$1,333.65
= ($1.16+$.44+$.69)*600 shares - 3*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $15.39): -$974.95
= ($15.39-$17.00)*600 - $8.95 commissions
(c) Capital Appreciation (If MS stock assigned at $16.00 at Jan2012 expiration):
-$608.95 = ($16.00-$17.00)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $15.39): +$358.70
= (+$1,333.65 +$0.00 -$974.95)
Total Net Profit(If stock price above $16.00 at Jan2012 options expiration): +$724.70
= (+$1,333.65 +$0.00 -$608.95)

1. Absolute Return if Unchanged at $15.39: +3.5%
= +$358.70/$10,200.00
Annualized Return If Unchanged (ARIU): +14.8%
= (+$358.70/$10,200.00)*(365/87 days)

2. Absolute Return (If stock price above $16.00 at Jan2012 options expiration): +7.1%
= +$724.70/$10,200.00
Annualized Return (If stock price above $15.00 at expiration): +29.8%
= (+$724.70/$10,200.00)*(365/87 days)

Monday, December 19, 2011

Overall Market Meter Rating Remains at "Neutral"

Each month during options expiration week, the Covered Calls Advisor re-calculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. This month, the Overall Market Meter rating remains unchanged at Neutral.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).















The current Market Meter Average of 3.38 (see blue line in chart above) is identical with last month's overall rating. Moreover, all eight factors used to determine the Overall Market Meter rating remained unchanged from November's analysis.

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the nearest expiration month." So, now with the December 2011 options expiration having occurred, newly established positions for January 2012 expiration will be established in accordance with this guideline.

Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar.

Jeff

December 2011 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained a total of nine covered calls positions with December 2011 expirations. All nine positions in the CCAP (Apple Inc., Citigroup Inc., Halliburton Co., iShares MSCI Emerging Markets ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Morgan Stanley, Peabody Energy Corp., and Valero Energy) expired out-of-the-money. Decisions will be made to either sell these equities, or to keep them and sell calls to establish January 2012 covered call positions. The related transactions will be made this week and the actual transactions will be posted on this blog site on the same day they occur.

Wednesday, December 7, 2011

Country Value Rankings

About once a quarter, the Covered Calls Advisor calculates the seven factors used to determine the current "Country Value Rankings". Today's results (shown in the table below), provides a value-oriented and objective framework that assists this advisor to make decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's portfolio.

A comprehensive approach to asset allocation goes beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.); it should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Legendary investor John Templeton was a leader in advocating for developing a global-oriented value investing perspective to achieve investing outperformance.







Note: For expanded view, left click on this spreadsheet







The Country Value Rankings table above is based on a weighted-average ranking system. You will notice that there are seven categories (and one factor for each category) used in the analysis of each country as follows:









The next-to-last column on the Country Value Rankings spreadsheet shows the Weighted Average Summation Total for each country. It is interesting that the Top 5 countries are Asian -- China, Hong Kong, Taiwan, South Korea, and Malaysia. Thus, investments in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog) will be substantially overweighted in these higher rated countries. It should also be noted that the U.S. is ranked 16th of the 21 countries rated, so U.S.-based companies selected for investment will be those with significant exposure to sales in countries/regions with relatively high expected GDP Growth in 2012.

This Country Value Rankings spreadsheet is detailed in terms of both the methodolgy used and the resources used to capture the information for each country. If you are interested in these details and would like further information or clarification, please share your comments and questions in writing. They are always welcomed. Click the 'comments' link below to post your feedback. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog.

Hopefully, this information is helpful in your thinking and analysis of your own equities selection methods related to your covered calls investing process!

Regards and Godspeed to All,
Jeff

Friday, December 2, 2011

Continuation Transaction -- Apple Inc.

Today, a decision was made to retain the 100 shares held in Apple Inc.(AAPL) and to establish a Dec2011 covered call position. The detailed transactions as well as some possible results for this investment are as follows:

Apple Inc.(AAPL) -- Continuation
The transactions history is as follows:
09/19/2011 Bought 100 shares AAPL at $396.544
09/19/2011 Sold 1 AAPL Oct2011 $410 Call Option @ $10.15
10/22/2011 Oct2011 option expired.
Note: the AAPL price was $392.87 at option expiration.
10/24/2011 Sold 1 AAPL Nov2011 $410 Call Option @ $7.20
Note: the price of AAPL was $399.10 when the option was sold.
11/19/2011 Nov2011 AAPL options expired.
11/30/2011 Sold 1 AAPL Dec2011 $400.00 Call @ $4.40
Note: the price of AAPL was $392.94 today when this call option was sold.

Some possible performance results(including commissions) for this AAPL position are as follows:
Stock Purchase Cost: $39,663.35
= ($396.544*100+$8.95 commission)

Net Profit:
(a) Options Income: +$2,145.90
= (100*($10.15+$7.20+$4.40) - 3*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $392.94): -$369.35
= ($392.94-$396.544)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $400.00 at expiration): +$336.65
= ($400.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock price unchanged at $392.94): +$1,776.55
= (+$2,145.90 +$0.00 -$369.35)
Total Net Profit (If stock assigned at $400.00): +$2,482.55
= (+$2,145.90 +$0.00 +$336.65)

1. Absolute Return (If stock price unchanged at $392.94): +4.5%
= +$1,776.55/$39,663.35
Annualized Return If Unchanged (ARIU) +18.4%
= (+$1,776.55/$39,663.35)*(365/89 days)

2. Absolute Return (If stock assigned at $400.00 strike price): +6.3%
= +$2,482.55/$39,663.35
Annualized Return If Assigned (ARIA): +25.7%
= (+$2,482.55/$39,663.35)*(365/89 days)