Wednesday, September 26, 2012

Establish Apple Inc. Covered Call

Today, a new covered call position was established in Apple Inc. with an Oct2012 expiration and at the $675 strike price. The transactions and some possible outcomes are as follows:

09/26/2012 Bought 100 AAPL shares @ $667.85
09/26/2012 Sold 1 AAPL Oct2012 $675.00 Call Option @ $16.50
Note: the price of AAPL was $669.50 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: $66,793.95
= ($667.85*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,640.30
= ($16.50*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $667.85): -$8.95
+($667.85-$667.85)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $675.00): +$706.05
+($675.00-$667.85)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at Oct2012 expiration): +$1,631.35
= (+$1,640.30 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $675.00 at Oct2012 expiration): +$2,346.35
= (+$1,640.30 +$0.00 +$706.05)

1. Absolute Return (If stock price unchanged at Oct2012 expiration): +2.4%
= +$1,631.35/$66,793.95
Annualized Return (If stock price unchanged at Oct2012 expiration): +35.7%
= (+$1,631.35/$66,793.95)*(365/25 days);

OR

2. Absolute Return (If stock assigned at $675.00 at Oct2012 expiration): +3.5%
= +$2,346.35/$66,793.95
Annualized Return (If stock assigned): +51.3%
= (+$2,346.35/$66,793.95)*(365/25 days)

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