Wednesday, April 25, 2012

Continuation Transactions -- Eight Covered Calls Positions

Upon Apr2012 options expiration, eleven covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions in eight of these positions -- Apple Inc.(AAPL), Goldcorp Inc.(GG), Halliburton Company (HAL), Hartford Financial Services Group (HIG), iShares MSCI China ETF (FXI), iShares Emerging Markets ETF (EEM), Mylan Inc.(MYL), and Market Vectors Russia ETF (RSX). The detailed transactions history for these positions as well as some possible overall performance results are as follows:

1. Apple Inc.(AAPL) -- Continuation
The transactions history is 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.
04/22/2012 AAPL Apr2012 Call options expired.
04/25/2012 Sold 1 AAPL May2012 $630.00 Call at $15.50
Note: the price of AAPL was $617.60 when this call option was sold.

Two possible overall performance results(including commissions) for these 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: +$3,355.60
= ($18.25+$15.50)*100 shares - 2*$9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $617.60): +$2,451.05
=($617.60-$593.00)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $630.00): +$3,691.05
=($630.00-$593.00)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $617.60 upon May2012 expiration): +$5,806.65 = (+$3,355.60 +$0.00 +$2,451.05)
Total Net Profit(If stock assigned at $630.00 at May2012 expiration): +$7,046.65
= (+$3,355.60 +$0.00 +$3,691.05)

1. Absolute Return (If stock price unchanged upon May2012 expiration): +9.8%
= +$5,806.65/$59,308.95
Annualized Return (If stock price unchanged at May2012 expiration): +57.6%
= (+$5,806.65/$59,308.95)*(365/62 days)

2. Absolute Return (If stock assigned at $630.00 at Apr2012 expiration): +11.9%
= +$7,046.65/$59,308.95
Annualized Return (If stock assigned): +69.9%
= (+$7,046.65/$59,308.95)*(365/62 days)


2. Goldcorp Inc.(GG) -- Continuation
The transactions were as follows:
03/07/2012 Bought 200 Goldcorp Shares @ $46.75
03/08/2012 Sold 2 GG Apr2012 $48.00 Calls @ $1.55
Note: the price of Goldcorp was $47.14 today when the calls were sold.
04/22/2012 GG Apr2012 Call options expired.
04/25/2012 Sold 2 GG May2012 $43.00 Calls at $.52
Note: the price of GG was $40.69 when these call options were sold.

Two possible overall performance results(including commissions) for the Goldcorp Inc.(GG) transactions would be as follows:
Stock Purchase Cost: $9,358.95
= ($46.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$393.10
= ($1.55+$.52)*200 shares - 2*$10.45 commissions
(b) Dividend Income (GG provides $.045 monthly dividends): +$27.00
= $.045 per share x 200 shares x 3 ex-div dates prior to May2012 expiration
(c) Capital Appreciation (If stock price unchanged at $40.69): -$1,220.95
+($40.69-$46.75)*200 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $43.00): -$758.95
+($43.00-$46.75)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at May2012 expiration): -$800.85
= (+$393.10 +$27.00 -$1,220.95)
Total Net Profit(If stock assigned at $43.00 at May2012 expiration): -$338.85
= (+$393.10 +$27.00 -$758.95)

1. Absolute Return (If stock price unchanged at $40.69 upon May2012 expiration):
-8.6% = -$800.85/$9,358.95
Annualized Return (If stock price unchanged at May2012 expiration): -50.4%
= (-$800.85/$9,358.95)*(365/44 days)

2. Absolute Return (If stock assigned at $43.00 upon May2012 expiration): -3.6%
= -$338.85/$9,358.95
Annualized Return (If stock assigned at May2012 expiration): -21.3%
= (-$338.85/$9,358.95)*(365/62 days)


3. Halliburton Co.(HAL) -- Continuation
The transactions were as follows:
03/07/2012 Bought 300 Halliburton Co. Shares @ $34.02
03/08/2012 Sold 3 HAL Mar2012 $35.00 Calls @ $.48
Note: the price of Halliburton was $34.59 today when the calls were sold. 03/18/2012 Mar2012 options expired.
03/19/2012 Sold 3 HAL Apr2012 $35.00 Calls @ $1.18
Note: the price of HAL was $34.90 when these options were sold.
04/22/2012 HAL Apr2012 Call options expired.
04/25/2012 Sold 3 HAL May2012 $35.00 Calls at $.52
Note: the price of HAL was $33.95 when these call options were sold.

Two possible overall performance results(including commissions) for the Halliburton Co.(HAL) transactions would be as follows:
Stock Purchase Cost: $10,214.95
= ($34.02*300+$8.95 commission)

Net Profit:
(a) Options Income: +$620.40
= ($.48+$1.18+$.52)*300 shares - 3*$11.20 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $33.95): -$29.95
+($33.95-$34.02)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $35.00): +$285.05
+($35.00-$34.02)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at May2012 expiration): +$590.45
= (+$620.40 +$0.00 -$29.95)
Total Net Profit(If stock assigned at $35.00 at May2012 expiration): +$905.45
= (+$620.40 +$0.00 +$285.05)

1. Absolute Return (If stock price unchanged at May2012 expiration): +5.8%
= +$590.45/$10,214.95
Annualized Return (If stock price unchanged at May2012 expiration): +28.5%
= (+$590.45/$10,214.95)*(365/74 days)

2. Absolute Return (If stock assigned at $35.00 at May2012 expiration): +8.9%
= +$905.45/$10,214.95
Annualized Return (If stock assigned): +43.7%
= (+$905.45/$10,214.95)*(365/74 days)


4. Hartford Financial Services Group (HIG) -- Continuation
The transactions history is as follows:
03/23/2012 Sold 3 Hartford Financial Services Group (HIG) Apr2012 $21.00 Put Options @ $.67
Note: the price of HIG was $21.29 today when these Puts were sold.
04/22/2012 HIG Apr2012 Puts expired.  300 shares HIG purchased at $21.00 per share.
04/25/2012 Sold 3 HIG May2012 $21.00 Calls at $.65
Note: the price of HIG was $20.72 when these Calls were sold.


Two possible overall performance results(including commissions) for the Hartford Financial Services Group (HIG) transactions would be as follows:

Stock Purchase Cost: $6,308.95
= ($21.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$373.60
= ($.67+$.65)*300 shares - 2*$11.20 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $20.72): -$92.95
+($20.72-$21.00)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $21.00): -$8.95
+($21.00-$21.00)*300 - $8.95 commissions
Total Net Profit (If stock price unchanged at $20.72 upon May2012 expiration): +$280.65 = (+$373.60 +$0.00 -$92.95)
Total Net Profit (If stock assigned at $21.00 at May2012 expiration): +$364.65
= (+$373.60 +$0.00 -$8.95)

1. Absolute Return (If stock price unchanged at May2012 expiration): +4.4%
= +$280.65/$6,308.95
Annualized Return (If stock price unchanged at May2012 expiration): +28.0%
= (+$280.65/$6,308.95)*(365/58 days)

2. Absolute Return (If stock assigned at $21.00 at May2012 expiration): +5.8%
= +$364.65/$6,308.95
Annualized Return (If stock assigned): +36.4%
=(+$364.65/$6,308.95)*(365/58 days)


5. iShares MSCI China ETF (FXI) -- Continuation
The transactions 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.
03/17/2012 Mar2012 FXI options expired.
04/03/2012 Sold 10 FXI Apr2012 $38.00 Calls @ $.44
Note: the price of FXI was $37.31 when these options were sold.
04/22/2012 FXI Apr2012 Call options expired.
04/25/2012 Sold 10 FXI May2012 $38.00 Calls at $.70
Note: the price of FXI was $37.70 when these call options were sold.

Two possible overall performance result(including commissions) for this iShares MSCI China ETF (FXI) position is as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$6,515.70
= (1,000*($.49+$.37+$.71+$.65+$.47+$.86+$1.10-$.68+$.49-$.27+$1.30+$.44+$.70) - 11*$12.70 commissions)
(b) Distribution Income: $767.95 = ($.68555+$.0794) * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $37.70 at expiration): -$7,108.95
= ($37.70-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If FXI assigned at $38.00 at expiration): -$6,808.95
= ($38.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI unchanged at $37.70): +174.70
= (+$6,515.70.00 +$767.95 -$7,108.95)
Total Net Profit (If FXI assigned at $38.00): +$474.70
= (+$6,515.70 +$767.95 -$6,808.95)

Absolute Return (If FXI unchanged at $37.70 at expiration): +0.4%
= +$174.70/$44,808.95
Annualized Return If Unchanged (ARIU): +0.4%
= (+$174.70/$44,808.95)*(365/398 days)

Absolute Return (If FXI assigned at $38.00 at expiration): +1.1%
= +$474.70/$44,808.95
Annualized Return If Assigned (ARIA): +1.0%
= (+$474.70/$44,808.95)*(365/398 days)


6. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
03/21/2012 Bought 500 EEM shares @ $43.31
03/21/2012 Sold 5 EEM Apr2012 $44.00 Call Options @ $.78
04/22/2012 EEM Apr2012 Call options expired.
04/25/2012 Sold 5 EEM May2012 $43.00 Calls at $.50
Note: the price of EEM was $42.20 when these call options were sold.

Two possible overall performance results(including commissions) for the iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $21,663.95
= ($43.31*500+$8.95 commission)

Net Profit:
(a) Options Income: +$614.60
= ($.78+$.50)*500 shares - 2*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If equity price unchanged at $42.20): -$563.95
+($42.20-$43.31)*500 - $8.95 commissions
(c) Capital Appreciation (If EEM assigned at $43.00): -$163.95
+($43.00-$43.31)*500 - $8.95 commissions

Total Net Profit(If price unchanged at $43.31 at May2012 expiration): +$50.65
= (+$614.60 +$0.00 -$563.95)
Total Net Profit(If equity assigned at $43.00 at May2012 expiration): +$450.65
= (+$614.60 +$0.00 -$163.95)

1. Absolute Return (If EEM price unchanged at $42.20 upon May2012 expiration): +0.2% = +$50.65/$21,663.95
Annualized Return (If stock price unchanged at May2012 expiration): +1.4%
= (+$50.65/$21,663.95)*(365/60 days)
2. Absolute Return (If EEM equity assigned at $43.00 at May2012 expiration): +2.1% = +$450.65/$21,663.95
Annualized Return (If EEM assigned upon expiration): +12.7%
= (+$450.65/$21,663.95)*(365/60 days)


7. Mylan Inc.(MYL) -- Continuation
The transactions were as follows:
03/07/2012 Bought 500 Mylan Inc. Shares @ $22.51
03/08/2012 Sold 5 MYL Mar2012 $23.00 Calls @ $.26
Note: the price of Mylan was $22.75 today when the calls were sold.
03/18/2012 Mar2012 options expired.
03/19/2012 Sold 5 MYL Apr2012 $23.00 Calls @ $.47
Note: the price of MYL was $22.73 when these options were sold.
04/22/2012 MYL May2012 Call options expired.
04/25/2012 Sold 5 MYL May2012 $23.00 Calls at $.30
Note: the price of MYL was $22.20 when these call options were sold.

Two possible overall performance results(including commissions) for the Mylan Inc.(MYL) transactions would be as follows:
Stock Purchase Cost: $11,263.95
= ($22.51*500+$8.95 commission)

Net Profit:
(a) Options Income: +$476.90
= ($.26+$.47+$.30)*500 shares - 3*$12.70 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $22.20): -$163.95
+($22.20-$22.51)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $23.00): +$236.05
+($23.00-$22.51)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $22.20 upon May2012 expiration): +$312.95 = (+$476.90 +$0.00 -$163.95)
Total Net Profit(If stock assigned at $23.00 at May2012 expiration): +$712.95
= (+$476.90 +$0.00 +$236.05)

1. Absolute Return (If stock price unchanged at $22.20 upon May2012 expiration): +2.8% = +$312.95/$11,263.95
Annualized Return (If stock price unchanged at May2012 expiration): +13.7%
= (+$312.95/$11,263.95)*(365/74 days)

2. Absolute Return (If stock assigned at $23.00 upon May2012 expiration): +6.3%
= +$712.95/$11,263.95
Annualized Return (If stock assigned at May2012 expiration): +31.2%
= (+$712.95/$11,263.95)*(365/74 days)3. Halliburton Co.(HAL) -- Continuation


8. Market Vectors Russia ETF(RSX) -- Continuation
The transactions history is as follows:
03/23/2012 Bought 300 RSX @ $30.85
03/23/2012 Sold 3 RSX Apr2012 $31.00 Calls @ $1.10
Note: the price of RSX was $30.95 these call options were sold.
04/22/2012 RSX Apr2012 Call options expired.
04/25/2012 Sold 3 RSX May2012 $31.00 Calls at $.35
Note: the price of RSX was $29.72 when these call options were sold.

Although there are unlimited outcomes, two possible overall performance results(including commissions) for this Market Vectors Russia Index ETF (RSX) position are as follows:
Stock Purchase Cost: $9,263.95
= ($30.85*300 + $8.95 commission)
Net Profit:
(a) Options Income: +$412.60
= ($1.10+$.35)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of RSX is unchanged at $29.72): -$347.95
= ($29.72-$30.85)*300 - $8.95 commissions
(c) Capital Appreciation (If RSX above $31.00 at May2012 expiration): +$36.05
+($31.00-$30.85)*300 - $8.95 commissions

Total Net Profit(If RSX unchanged at $29.72): +$64.65
= (+$412.60 +$0.00 -$347.95)
Total Net Profit(If RSX above $31.00 at May2012 options expiration): +$448.65
= (+$412.60 +$0.00 +$36.05)

1. Absolute Return if Unchanged at $29.72 upon May2012 expiration: +0.7%
= +$64.65/$9,263.95
Annualized Return If Unchanged (ARIU): +4.4%
= (+$64.65/$9,263.95)*(365/58 days)

2. Absolute Return (If RSX above $31.00 at May2012 options expiration): +4.8%
= +$448.65/$9,263.95
Annualized Return (If RSX above $31.00 at expiration): +30.5%
= (+$448.65/$9,263.95)*(365/58 days)

Closed -- Rio Tinto PLC

The Apr2012 covered calls position in Rio Tinto expired last Friday. Today, a decision was made to close out the RIO position by selling the 300 shares. The Covered Calls Advisor Portfolio is overweighted in the materials sector, so this sale will provide some cash to establish a new covered calls position that this Advisor believes will provide a better profit opportunity going forward. The detailed transactions history for this position as well as the performance result is shown below:

02/21/2012 Bought 300 RIO @ $58.24 02/21/2012
Sold 3 RIO Mar2012 $57.50 Calls @ $1.80
02/29/2012 Ex-Dividend $273.00 = $.91 * 300 shares 03/18/2012 Mar2012 options expired.
03/19/2012 Sold 3 RIO Apr2012 $57.50 Calls @ $1.75
Note: the price of RIO was $57.30 when these options were sold.
04/22/2012 RIO Apr2012 Call options expired.
04/25/2012 Sold 300 RIO at $56.19

The overall performance result(including commissions) for this Rio Tinto PLC (RIO) transactions was as follows:
Stock Purchase Cost: $17,480.95 = ($58.24*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,053.80
= ($1.80+$1.75)*300 shares - $11.20 commissions
(b) Dividend Income: +$273.00
= $.91 per share x 300 shares
(c) Capital Appreciation (Stock sold at $56.19): -$623.95
= +($56.19-$58.24)*300 - $8.95 commissions

Total Net Profit: +$702.85
= (+$1,053.80 +$273.00 -$623.95)

Absolute Return: +4.0%
= +$702.85/$17,480.95
Annualized Return: +22.9%
= (+$702.85/$17,480.95)*(365/64 days)

Monday, April 23, 2012

April 2012 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained twelve positions with April 2012 expirations. A summary of the results were as follows:
- Eleven positions (Apple Inc., Goldcorp, Halliburton, Hess Corporation, iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Hartford Financial Servies Group, Market Vectors Russia Index ETF, Morgan Stanley, Mylan Inc., and Rio Tinto Ltd.) expired out-of-the-money. Decisions will be made to either sell these equities, or to keep them and sell calls to establish May 2012 covered call positions. The related transactions will be made this week and the actual transactions will be posted on this blog site on the same day they occur.

- One position (Potash Corp.) was a short cash-secured-puts position that was in-the-money upon options expiration, so the options expired worthless and the position is closed. The detailed transactions history and result for this Potash position is as follows:

1. Potash Corp. of Saskatchewan Inc.(POT) -- Closed
The transaction history is as follows:
03/14/2012 Sold 3 Potash Corp (POT) Apr2012 $42.50 Put Options @ $1.62
Note: the price of POT was $42.58 today when these Puts were sold.
04/22/2012 3 POT Put options expired worthless.
Note: the price of POT was $43.93 upon options expiration.

The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the three Put options sold.

The overall performance result(including commissions) for this Potash Corp (POT) transaction was as follows:
100% Cash-Secured Cost Basis: $12,750.00
= $42.50*300

Net Profit:
(a) Options Income: +$474.80
= ($1.62*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (POT above $42.50 at Apr2012 expiration): +$0.00
= ($42.50-$42.50)*300

Total Net Profit (POT above $42.50 at Apr2012 options expiration): +$474.80
= (+$474.80 +$0.00 +$0.00)

Absolute Return (POT above $42.50 at Apr2012 options expiration and Put options thus expire worthless): +3.7%
= +$474.80/$12,750.00
Annualized Return: +34.9%
= (+$474.80/$12,750.00)*(365/39 days)

Wednesday, April 18, 2012

Overall Market Meter Rating Remains "Slightly Bullish"

Each month during options expiration week, the Covered Calls Advisor recalculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. This month, the Overall Market Meter rating is unchanged at Slightly Bullish.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).















The current Market Meter Average of 3.75 (see blue line in chart above) is slightly lower than the 3.88 of last month. The 3.75 is a Slightly Bullish rating (range from 3.5 to 4.5), which is unchanged from the prior month. Six of the eight factors used to determine the Overall Market Meter rating were unchanged from the prior analysis last month. The two factors that changed were: (1) Business Cycle and Initial Claims for Unemployment changed from Slightly Bearish to Neutral; and (2) Interest Rates changed from Bullish to Neutral.

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bullish sentiment is to "on-average sell 2% out-of-the-money covered calls for the nearest expiration month." So with the April 2012 options expiration this week, newly established positions for May 2012 expiration will be established in accordance with this guideline.

Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Wednesday, April 4, 2012

Establish Morgan Stanley Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Morgan Stanley (MS) covered calls as follows:

Established Morgan Stanley (MS) Covered Calls for Apr2012:
04/04/2012 Bought 300 MS @ $18.82
04/04/2012 Sold 3 MS Apr2012 $19.00 Calls @ $.66
Note: the price of MS was $18.87 today when the call options were sold.

Today, Morgan Stanley had declined by about 3.0% when this position was established.
This position is a repeat of a successful trade in Morgan Stanley for the March 2012 options expiration in which the stock ended in-the-money and the stock was called away. The implied volatility in the options sold had risen to 44.5 today, so the options premiums had increased to a very attractive level. The covered calls were established today at a level about 1% out-of-the-money.

The 10-year chart below shows that Morgan Stanley is now trading at a historically low valuation relative to its book value. It is is now priced at about 50% of book value per share versus a historical norm above 100%.
Morgan Stanley Stock Chart

Morgan Stanley Stock Chart by YCharts



With Morgan Stanley's primary financial metrics now slowly improving, the stock's downside risk seems relatively small now relative to its upside potential.

A possible overall performance result(including commissions) for this Morgan Stanley position is as follows:
Stock Purchase Cost: $5,654.95
= ($18.82*300+$8.95 commission)

Net Profit:
(a) Options Income: +$186.80
= 300*$.66 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MS price unchanged at $18.82): -$8.95
= ($18.82-$18.82)*300 - $8.95 commissions
(c) Capital Appreciation (If MS assigned at $19.00): +$45.05
= ($19.00-$18.82)*300 - $8.95 commissions


Total Net Profit(If MS price unchanged at $18.82): +$177.85
= (+$186.80 +$0.00 -$8.95)
Total Net Profit(If MS assigned at $19.00): +$231.85
= (+$186.80 +$0.00 +$45.05)


Absolute Return if Unchanged at $18.82: +3.1%
= +$177.85/$5,654.95
Annualized Return If Unchanged (ARIU): +63.8%
= (+$177.85/$5,654.95)*(365/18 days)

Absolute Return if Assigned at $19.00: +4.1%
= +$231.85/$5,654.95
Annualized Return If Assigned (ARIA): +83.1%
= (+$231.85/$5,654.95)*(365/18 days)

The downside 'breakeven price' at expiration is at $18.16 ($18.82 - $.66).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2012 options expiration) for this Morgan Stanley covered calls position is 66.0%. This compares with a probability of profit of 51.7% for a buy-and-hold of MS over the same time period.

The 'crossover price' at expiration is $19.66 ($19.00 + $.66).
This is the price above which it would have been more profitable to simply buy-and-hold MS until April 20, 2012 (the Apr2012 options expiration date) rather than establishing the covered calls position. The probability of exceeding this crossover price at expiration is 34.2%.

Tuesday, April 3, 2012

Continuation Transaction -- iShares MSCI China ETF (FXI)

Today, the covered calls position in iShares MSCI China ETF (FXI) was re-established by selling 10 $38.00 calls with an Apr2012 options expiration. The detailed transactions history as well as possible performance results is as follows:

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.
03/17/2012 Mar2012 FXI options expired.
04/03/2012 Sold 10 FXI Apr2012 $38.00 Calls @ $.44
Note: the price of FXI was $37.31 when these options were sold.

Two possible overall performance result(including commissions) for this iShares MSCI China ETF (FXI) position is as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$5,803.00
= (1,000*($.49+$.37+$.71+$.65+$.47+$.86+$1.10-$.68+$.49-$.27+$1.30+$.44) - 10*$12.70 commissions)
(b) Distribution Income: $767.95 = ($.68555+$.0794) * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $37.31 at expiration): -$7,498.95
= ($37.31-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If FXI assigned at $38.00 at expiration): -$6,808.95
= ($38.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI unchanged at $37.31): -$928.00
= (+$5,803.00 +$767.95 -$7,498.95)
Total Net Profit (If FXI assigned at $38.00): -$238.00
= (+$5,803.00 +$767.95 -$6,808.95)

Absolute Return (If FXI unchanged at $37.31 at expiration): -2.1%
= -$928.00/$44,808.95
Annualized Return If Assigned (ARIA): -2.0%
= (-$928.00/$44,808.95)*(365/370 days)

Absolute Return (If FXI assigned at $38.00 at expiration): -0.5%
= -$238.00/$44,808.95
Annualized Return If Assigned (ARIA): -0.5%
= (-$238.00/$44,808.95)*(365/370 days)

Sunday, April 1, 2012

Returns -- Through March 2012

1. 2012 Year-to-Date Results:

As shown in the "Year-to-Date 2012" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has increased by 10.81% so far in 2012. This is 1.46 percentage points (+10.81% minus 12.27%) below the Russell 3000 index, which is the benchmark against which the Covered Calls Advisor Portfolio is compared. This subpar performance in March occurred for two reasons: (1) the overweighting in emerging markets (which underperformed developed markets in March); and (2) the additional hedging against a possible market decline (which didn't occur) by establishing a long volatility position via VXX.









The financial results were as follows:

CCAP Absolute Return (Jan 1st through Mar 31st, 2012) = +10.81%
($325,376.00-$293,634.14)/$293,634.14

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through Feb 29th, 2012) = +12.27%
($83.28-$74.18)/$74.18

As a reminder, the Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined: If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100.


2. Prior Years Results:

This Covered Calls Advisor blog began in September 2007. The performance results for 2007 through 2011 is summarized as follows:
















This table shows that the Covered Calls Advisor Portfolio has outperformed the Russell 3000 benchmark by a total of 16.94% over the 4.3 years from the start of this blog in Sepember 2007 and the end of 2011. As shown, the corresponding average compound annual return-on-investment outperformance has averaged +3.85% per year. This average is within the Covered Calls Advisor's expected range of +3% to +5% average annual outperformance for long-term results achieved from a well-managed covered calls investing program.

Also as a reminder, the Covered Calls Advisor Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all equities in the CCAP are also held in this advisor's personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating is "SLIGHTLY BULLISH". The corresponding investing strategy is to, on-average, sell 2% out-of-the-money covered calls for the nearest expiration month.

If you have any comments or questions, please feel free to submit them -- they are always welcomed. Click the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site.

Regards and Godspeed,
Jeff