Wednesday, February 1, 2012

Continuation Transaction -- Apple Inc.

Today, a decision was made to retain the 100 shares held in Apple Inc.(AAPL) and to establish a Feb2011 covered call position. The decision by the Covered Calls Advisor to hold the long AAPL position uncovered after the Dec2012 option expired was fortuitous. The stock was at $381.02 at Dec2012 options expiration and has increased to $456.91 as of today when this covered call position was re-established. The dramatic increase in Apple's stock price resulted primarily from Apple's outstanding 1st quarter earnings report issued in January.

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.
12/17/2011 Dec2011 AAPL options expired.
Note: the price of AAPL was $381.02 upon Dec2012 options expiration.
2/1/2012 Sold 1 AAPL Feb2012 $465 Call @ $3.85
Note: the price of AAPL was $456.91 today when this call option was sold.

Two 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: +$2,521.20
= (100*($10.15+$7.20+$4.40+$3.85) - 4*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $456.91): +$6,027.65
= ($456.91-$396.544)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $465.00 at expiration): +$6,836.65
= ($465.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock price unchanged at $456.91): +$8,548.85
= (+$2,521.20 +$0.00 +$6,027.65)
Total Net Profit (If stock assigned at $465.00): +$9,357.85
= (+$2,521.20 +$0.00 +$6,836.65)

1. Absolute Return (If stock price unchanged at $456.91 at Feb2012 options expiration): +21.6%
= +$8,548.85/$39,663.35
Annualized Return If Unchanged (ARIU): +51.8%
= (+$8,548.85/$39,663.35)*(365/152 days)

2. Absolute Return (If stock assigned at $465.00 strike price at Feb2012 options expiration): +23.6%
= +$9,357.85/$39,663.35
Annualized Return If Assigned (ARIA): +56.7%
= (+$9,357.85/$39,663.35)*(365/152 days)

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