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Monday, March 19, 2012

Establish Apple Inc. Covered Call

The previous covered call in Apple Inc. was assigned upon Mar2012 options expiration this past Friday. Today, a new covered call position was established in Apple Inc. with an Apr2012 expiration and at the $620 strike price. The transactions and some possible outcomes are as follows:

03/19/2012 Bought 100 AAPL shares @ $593.00
03/19/2012 Sold 1 AAPL Apr2012 $620.00 Call Option @ $18.25
Note: the price of AAPL was $595.43 when this call option was sold.

Two possible overall performance results(including commissions) for the Apple Inc.(AAPL) transactions would be as follows:
Stock Purchase Cost: $59,308.95
= ($593.00*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,815.30
= ($18.25*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $593.00): -$8.95
+($593.00-$593.00)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $620.00): +$2,691.05
+($620.00-$593.00)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at Apr2012 expiration): +$1,806.35
= (+$1,815.30 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $620.00 at Apr2012 expiration): +$4,506.35
= (+$1,815.30 +$0.00 +$2,691.05)

1. Absolute Return (If stock price unchanged at Apr2012 expiration): +3.0%
= +$1,806.35/$59,308.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +32.7%
= (+$1,806.35/$59,308.95)*(365/34 days)

2. Absolute Return (If stock assigned at $620.00 at Apr2012 expiration): +7.6%
= +$4,506.35/$59,308.95
Annualized Return (If stock assigned): +81.6%
= (+$4,506.35/$59,308.95)*(365/34 days)

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