Monday, March 19, 2012

Establish Hess Corp. Covered Calls

Today, a new covered calls position was established in Hess Corporation (Symbol HES) with an Apr2012 expiration and at the $65.00 strike price. The transactions and some possible outcomes are as follows:

03/19/2012 Bought 200 HES shares @ $62.572
03/19/2012 Sold 2 HES Apr2012 $65.00 Call Options @ $1.24
Note: the price of HES was $63.24 when these calls were sold.

Two possible overall performance results(including commissions) for the Hess Corp.(HES) transactions would be as follows:
Stock Purchase Cost: $12,523.35
= ($62.572*200+$8.95 commission)

Net Profit:
(a) Options Income: +$237.55
= ($1.24*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $62.572): -$8.95
+($62.572-$67.572)*200 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $65.00): +$476.65
+($65.00-$62.572)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at Apr2012 expiration): +$228.60
= (+$237.55 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $65.00 at Apr2012 expiration): +$714.20
= (+$237.55 +$0.00 +$476.65)

1. Absolute Return (If stock price unchanged at Apr2012 expiration): +1.8%
= +$228.60/$12,523.35
Annualized Return (If stock price unchanged at Apr2012 expiration): +19.6%
= (+$228.60/$12,523.35)*(365/34 days)

2. Absolute Return (If stock assigned at $65.00 at Apr2012 expiration): +5.7%
= +$714.20/$12,523.35
Annualized Return (If stock assigned): +61.2%
= (+$714.20/$12,523.35)*(365/34 days)

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