Monday, October 21, 2013

Continuation -- Noble Corp. Covered Calls

This past Friday was Oct2013 options expiration and the covered calls position in Noble Corp (Ticker Symbol NE) expired with NE closing at $37.98 which was below the $38.00 strike price, thus leaving 300 long shares of NE in the Covered Calls Advisor Portfolio.  Today, a new covered calls position was established at the $38.00 strike price and with an Nov2013 expiration.  As detailed below, this investment will provide an overall +5.9% absolute return in 64 days (which is equivalent to a +33.8% annualized return) if the stock closes at or above $38.00 at options expiration on Nov 15th.
The details of the associated transactions and a potential return-on-investment result are as follows:

1. Noble Corp. (NE)
The transactions were as follows:
09/13/2013 Bought 300 NE shares @ $38.91
09/13/2013 Sold 3 NE Oct2013 $38.00 Call Options @ $2.10
10/18/2013 Oct2013 options expired
Note: the price of NE was $37.98 upon Oct2013 options expiration
10/21/2013 Sold 3 NE Nov2013 Call options @ $.97
Note: the price of NE was $38.02 when these options were sold.
11/01/2013 Ex-dividend of $.25 per share

A possible overall performance result (including commissions) for these Noble Corp covered calls is as follows:
Stock Purchase Cost: $11,681.95
= ($38.91*300+$8.95 commission)

Net Profit:
(a) Options Income: +$898.60
= 300*($2.10+$.97) - 2*$11.20 commissions
(b) Dividend Income: +$75.00 = $.25 *300 shares
(c) Capital Appreciation (If NE assigned at $38.00) = -$281.95
= ($38.00-$38.91)*300 - $8.95 commissions

Total Net Profit (If NE assigned at $38.00): +$691.65
= (+$898.60 +$75.00 -$281.95)

Absolute Return if Assigned (at $38.00): +5.9%
= +$691.65/$11,681.95
Annualized Return If Assigned (ARIA): +33.8%
= (+$691.65/$11,681.95)*(365/64 days)