Friday, February 17, 2012

Roll Out -- Apple Inc. and iShares MSCI China ETF

Today was Feb2012 options expiration. With less than 30 minutes before the market close, two existing covered calls were rolled out to Mar2012 covered calls.
The advantage of waiting until this afternoon to roll these positions was to extract almost all of the extrinsic value from the short options before establishing the position for the next expiration month.

The detailed transactions history for these covered calls positions as well as possible performance results are as follows:

1. Apple Inc.(AAPL) -- Continuation
The transaction 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.
02/17/2012 Bought-to-Close 1 AAPL Feb2012 $465.00 Call @ $37.05
02/17/2012 Sold-to-Open 1 AAPL Mar2012 $485.00 Call @ $26.95
Note: the price of AAPL was $502.03 when these transactions were made.

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

Net Profit:
(a) Options Income: +$1,501.50
= (100*($10.15+$7.20+$4.40+$3.85-$37.05+$26.95) - 5*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock assigned at $485.00 at expiration): +$8,836.65
= ($485.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock assigned at $485.00): +$10,338.15
= (+$1,501.50 +$0.00 +$8,836.65)

Absolute Return (If stock assigned at $485.00 strike price at Mar2012 options expiration): +26.1%
= +$10,338.15/$39,663.35
Annualized Return If Assigned (ARIA): +52.9%
= (+$10,338.15/$39,663.35)*(365/180 days)


2. iShares MSCI China ETF (FXI) -- Continuation
The transaction history is as follows:
04/18/2011 Bought 1,000 FXI @ $44.80
04/20/2011 Sold 10 FXI May2011 $47.00 Calls @ $.49
Note: the price of FXI was $45.88 when the calls were sold.
05/31/2011 Sold 10 FXI Jul2011 $47.00 Calls @ $.37
Note: The price of FXI was $45.18 when these call options were sold.
06/21/2011 FXI ETF distribution of $.68555 per share
07/16/2011 Jul2011 FXI options expired.
07/18/2011 Sold 10 FXI Aug2011 $42.00 Calls @$.71
08/20/2011 Aug2011 FXI options expired.
08/22/2011 Sold 10 FXI Sep2011 $42.00 Calls @ $.65
09/17/2011 Sep2011 FXI options expired.
09/20/2011 Sold 10 FXI Oct2011 $38.00 Calls @ $.47
10/22/2011 Oct2011 options expired.
10/26/2011 Sold 10 FXI Nov2011 $37.00 Calls @ $.86
11/19/2011 Nov2011 FXI options expired.
11/30/2011 Sold 10 FXI Jan2012 $38.00 Calls @ $1.10
Note: the price of FXI was $36.42 today when these call options were sold.
12/20/2011 Ex-Distribution $79.40 = $.0794 * 1,000 shares
01/20/2012 Bought-to-Close 10 FXI Jan2012 $38.00 Calls @ $.68
Note: the price of FXI was $38.67 when these call options were bought.
01/20/2012 Sold 10 FXI Feb2012 $40.00 Calls @ $.49
Note: the price of FXI was $38.72 today when these call options were sold.
02/17/2012 Bought-to-Close 10 FXI Feb2012 $40.00 Calls @ $.27
02/17/2012 Sold-to-Open 10 FXI Mar2012 $40.00 Calls @ $1.30
Note: the price of FXI was $40.25 when these transactions were made.

A possible overall performance result(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$5,375.70
= (1,000*($.49+$.37+$.71+$.65+$.47+$.86+$1.10-$.68+$.49-$.27+$1.30) - 9*$12.70 commissions)
(b) Distribution Income: $767.95 = ($.68555+$.0794) * 1,000 shares
(c) Capital Appreciation (If FXI assigned at $40.00 at expiration): -$4,808.95
= ($40.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI assigned at $40.00): +$1,334.70
= (+$5,375.70 +$767.95 -$4,808.95)

Absolute Return (If FXI assigned at $40.00 at expiration): +3.0%
= +$1,334.70/$44,808.95
Annualized Return If Assigned (ARIA): +3.3%
= (+$1,334.70/$44,808.95)*(365/334 days)

2 comments:

  1. Why did you sell an ITM Mar485 call when AAPL was at 503?

    ReplyDelete
  2. My thought process was that AAPL is likely to experience a pause/pullback after its parabolic move since its earnings report. The options volatility has recently increased such that the implied volatility for the $485 strike is now about 30.8. This enables a 2.0% [$26.95-($502.00-$485.00)]/$502.00 absolute return for the next 27 days until expiration; and with a probability of receiving the full 2.0% (using the greek Delta approximation) of 67%. In short, a conservative strategy, but with a still attractive return possibility.

    Jeff

    ReplyDelete