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Monday, August 20, 2012

Continuation Transactions -- Bank of America Corp. and McDermott International Inc.

After Aug2012 options expiration last Friday, two long uncovered stock positions remained in the Covered Calls Advisor Portfolio (CCAP) for which decisions remained to either sell the stocks or to re-establish covered calls positions. This morning, a decision was made to retain both Bank of America Corp. (symbol BAC) and McDermott International Inc. (symbol MDR) and to re-establish covered call positions with Sep2012 expirations. The detailed transactions history for these positions as well as some possible overall performance results are as follows:

1. Bank of America Corp. (BAC) -- Continuation
This past Friday, the Aug2012 covered calls position in Bank of America Corp. was closed out. With Bank of America (BAC) trading at $8.01 with less than 15 minutes remaining in the trading day on options expiration Friday, the Aug2012 $7.00 calls were well in-the-money and there was no time value remaining in the options.

The transactions history for this BAC position is as follows: 07/30/2012 Bought 1,000 BAC shares @ $7.29
08/01/2012 Sold 10 BAC Aug2012 $7.00 Call Options @ $.44
Note: the price of BAC was $7.34 today when these options were sold.
08/17/2012 Bought-to-Close 10 BAC Aug2012 $7.00 call options @ $1.01
Note: BAC was trading at $8.01 when this transaction occurred.
08/20/2012 Sold 10 BAC Sep2012 $8.00 Call Options @ $.30
Note: BAC was trading at $8.05 when this transaction occurred.

A possible overall performance result (including commissions) for these Bank of America (BAC) transactions would be as follows:
Stock Purchase Cost: $7,281.05
= ($7.29*1,000+$8.95 commission)

Net Profit:
(a) Options Income: -$272.90
= ($.44-$1.01+$.30)*1,000 shares - 2*$16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BAC assigned at $8.00 upon expiration): +$701.05
=+($8.00-$7.29)*1,000 - $8.95 commissions

Total Net Profit (If BAC assigned at $8.00 at Sep2012 expiration): +$428.15
= (-$272.90 +$0.00 +$701.05)

Absolute Return (If BAC assigned at $7.00 at Aug2012 expiration): +5.9%
= +$428.15/$7,281.05
Annualized Return (If stock assigned): +39.7%
= (+$428.15/$7,281.05)*(365/54 days)


2. McDermott International Inc. (MDR) -- Continuation
Last Friday, the Aug2012 covered calls position in McDermott closed out-of-the-money upon Aug2012 options expiration.  Today, a covered calls position was established by selling ten Sep2012 $12.00 call options.

The transactions history for this MDR position is as follows:
08/01/2012 Bought 600 MDR @ $11.56
08/01/2012 Sold 6 MDR Aug2012 $12.00 Calls @ $.55
08/17/2012 MDR Aug2012 $12.00 Call Options expired.
Note: the price of MDR stock was $11.75 upon options expiration.

08/20/2012 Sold 6 MDR Sep2012 $12.00 Calls @ $.45
Note: the price of MDR was $11.76 when these options were sold.

Two possible overall performance results (including commissions) for this McDermott position is as follows:
Stock Purchase Cost: $9,256.95
= ($11.56*600+$8.95 commission)

Net Profit:
(a) Options Income: +$573.10
= 600 shares*($.55+$.45) - 2*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MDR price unchanged at $11.76 upon Sep2012 expiration): +$111.05 = ($11.76-$11.56)*600 - $8.95 commissions
(c) Capital Appreciation (If MDR assigned at $12.00): +$255.05 = ($12.00-$11.56)*600 - $8.95 commissions

Total Net Profit (If MDR price unchanged at $11.76 upon Sep2012 expiration): +$684.15 = (+$573.10 +$0.00 +$111.05)
Total Net Profit(If MDR assigned at $12.00 upon Sep2012 expiration): +$828.15 = (+$573.10 +$0.00 +$255.05)

1. Absolute Return (If MDR price unchanged at $11.76 upon Sep2012 expiration): +7.4% = +$684.15/$9,256.95
Annualized Return  (If MDR price unchanged upon Sep2012 expiration): +51.9%
= (+$684.15/$9,256.95)*(365/52 days)

2. Absolute Return if Assigned at $12.00: +8.9% = +$828.15/$9,256.95
Annualized Return If Assigned (ARIA): +62.8%
= (+$828.15/$9,256.95)*(365/52 days)

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