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Tuesday, March 13, 2018

Roll-Up-and-Out United States Steel Corp. Covered Calls

Today, the Covered Calls position in United States Steel Corp. was rolled-up-and-out from the March 16th $36.00 strike price to the April 20th $40.00 strike price. A simultaneous net debit Call spread was executed at $2.45 when the price of U.S. Steel stock was $41.88. 

As detailed below, if the stock remains above the $40.00 strike price at market close on the April 20th options expiration date, the result would be a +10.3% absolute return in 79 days (equivalent to a +47.4% annualized return-on-investment) for this US Steel position.  

United States Steel Corp. (X) -- New Covered Calls Position
The transactions were:
02/01/2018 Bought 400 shares of U.S. Steel stock @ $36.72 per share 
02/01/2018 Sold 4 U.S. Steel Mar 16th, 2018 $36.00 Call options @ $2.62 per share
Note: this was a simultaneous Buy/Write transaction
02/08/2018 $20.00 = ($.05 per share ex-dividend x 400 shares)
03/13/2018 Bought-to-Close 4 Mar 16th $36.00 Call options @ $5.99
03/13/2018 Sold-to-Open 4 Apr 20th $40.00 Call options @ $3.57
Note: this Calls debit spread transaction occurred when the stock was at $41.88

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $13,647.63
= ($36.72 - $2.62)* 400 shares + $7.63 commission

Net Profit Components:
(a) Options Income: +$71.97
= ($2.62 - $5.99 + $3.57) * 400 shares - $8.03 commissions 
(b) Dividend Income: +$20.00
= $.05 per share * 400 shares 
(c) Capital Appreciation (If X is above $40.00 strike price at Apr 20th expiration): +$1,307.05
= ($40.00 -$36.72)* 400 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): +$1,399.02
= (+$71.97 options income +$20.00 dividend income +$1,307.05 capital appreciation)

Absolute Return: +10.3%
= +$1,399.02/$13,647.63
Equivalent Annualized Return: +47.4%
= (+$1,399.02/$13,647.63)*(365/79 days)

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