Covered Calls Advisor

Sold 100% Cash-Secured Puts -- Mylan Inc.

2012-01-27T22:49:00.009-05:00

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Mylan Inc. (MYL) with a Feb2012 expiration.

Mylan Inc. is a leading manufacturer of generic pharmaceutical products in finished tablet, capsule and powder dosage forms. MYL markets more than 1,000 products throughout the world with sales from: North America 53%, Europe 33%, and Asia/Pacific 14%. Generics account for about 90% of total revenues, with specialty products representing the balance.

With a virtual oligopoly of vertically integrated worldwide generic manufacturers, Mylan is well-positioned to capture a significant share of new generics -- and the prognosis for the future growth of prescription generic drugs remains very healthy. There are three primary reasons for this:
(1) Patents for many lucrative branded drugs will be expiring over the next few years;
(2) Aging populations in most countries result in increased prescription drugs usage; and
(3) Governments' efforts to control healthcare costs favor generics.
Importantly, these three factors are forecasted with great certainty, which provides a high level of confidence in the outlook for the generic drugs industry.
Also, although there is already widespread penetration of generics (versus branded drugs) in the U.S., a greater growth opportunity awaits Europe, and an even greater opportunity exists in Asia and elsewhere throughout the world.

Mylan is very attractive at its current price. With the expected 2011 earnings at $2.00 per share and an options exercise price of $20, the P/E ratio is 10. But the earnings growth rate for each of the next 3 years is likely to be in the teens. So, the PEG (Price-Earnings Growth) Ratio is significantly below 1.0, which makes Mylan a very attractive investing opportunity now.

Mylan Inc. (MYL) -- New Position
The transaction was as follows:
01/27/2012 Sold 7 Mylan Inc. (MYL) Feb2012 $20.00 Put Options @ $.41
Note: the price of MYL stock was $20.92 today when these puts were sold.

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 seven put options sold. A possible overall performance result(including commissions) for this Mylan Inc. (MYL) transaction would be as follows:
100% Cash-Secured Cost Basis: $14,000.00
= $20.00*700

Net Profit:
(a) Options Income: +$272.80
= ($.41*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MYL stock above $20.00 at Feb2012 expiration): +$0.00
= ($20.00-$20.00)

Total Net Profit(If stock price above $20.00 at Feb2012 options expiration): +$272.80
= (+$272.80 +$0.00 +$0.00)

Absolute Return (If stock price above $20.00 at Feb2012 options expiration and put options thus expire worthless): +1.9%
= +$272.80/$14,000.00
Annualized Return (If stock price above $23.00 at expiration): +32.3%
= (+$272.80/$14,000.00)*(365/22 days)

The downside 'breakeven price' at expiration is at $19.59 ($20.00 - $.41).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2012 options expiration) for this Mylan Inc. cash-secured puts position is 69.7%. This compares with a probability of profit of 50.9% for a buy-and-hold of Mylan over the same time period.

The 'crossover price' at expiration is $21.33 ($20.92 + $.41).
This is the price above which it would have been more profitable to simply buy-and-hold Mylan stock until Feb 17, 2012 (the Feb2012 options expiration date) rather than holding the short put options.

Establish ProShares UltraShort S&P 500 ETF Covered Calls

2012-01-26T10:46:00.010-05:00

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of ProShares UltraShort S&P 500 ETF (Symbol SDS) covered calls as follows:

Established ProShares UltraShort S&P 500 ETF (SDS) Covered Calls for Feb2012:
01/26/2012 Bought 1,000 SDS @ $17.07
01/26/2012 Sold 10 SDS Feb2012 $18.00 Calls @ $.29
Note: the price of SDS was $17.19 when the options were sold.

Based on Relative Strength indicators, the S&P 500 seems overbought at this time. So a long position (but only 5% of the total value of the Covered Calls Advisor Portfolio) was established in this inverse ETF (SDS) as a hedge against the likelihood of a short-term (Feb2012 expiration) market decline from current levels.

Some readers might ask: "Why establish an out-of-the-money position in an inverse ETF instead of simply an in-the-money position in a direct investment (such as SPY)?" My answer is: "An out-of-the-money position in the inverse SDS ETF enables the possibility of capital appreciation in the underlying ETF if the overall stock market now begins to trend lower. This establishes the possibility of a substantially higher return-on-investment result than could be achieved from an in-the-money SPY position (since in-the-money covered calls positions eliminate the possibility of capital appreciation in the underlying equity) .

Although there are unlimited outcomes, two possible overall performance results(including commissions) for the ProShares UltraShort S&P 500 ETF (SDS) transactions would be as follows:
Stock Purchase Cost: $17,078.95
= ($17.07*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$273.55
= ($.29*1,000 shares) - $16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of SDS is unchanged at $17.07): -$8.95
= ($17.07-$17.07)*1,000 - $8.95 commissions
(c) Capital Appreciation (If SDS above $18.00 at Feb2012 expiration): +$921.05
+($18.00-$17.07)*1,000 - $8.95 commissions

Total Net Profit(If SDS unchanged at $17.07): +$264.60
= (+$273.55 +$0.00 -$8.95)
Total Net Profit(If SDS above $18.00 at Feb2012 options expiration): +$1,194.60
= (+$273.55 +$0.00 +$921.05)

1. Absolute Return if Unchanged at $17.07: +1.5%
= +$264.60/$17,078.95
Annualized Return If Unchanged (ARIU): +24.6%
= (+$264.60/$17,078.95)*(365/23 days)

2. Absolute Return (If SDS above $18.00 at Feb2012 options expiration): +7.0%
= +$1,194.60/$17,078.95
Annualized Return (If SDS above $18.00 at expiration): +111.0%
= (+$1,194.60/$17,078.95)*(365/23 days)

The downside breakeven price at expiration is at $16.78 ($17.07 - $.29). Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2012 options expiration) for this ProShares UltraShort S&P 500 ETF covered calls position is 59.6%. This compares with a probability of profit of 51.7% for a buy-and-hold of SDS over the same time period.

The upside crossover price at expiration is $18.29 ($18.00 + $.29).
This is the price above which it would have been more profitable to simply buy-and-hold SDS until Feb 17, 2012 (the Feb2012 options expiration date) rather than holding the covered calls position. The Options Pricing Model indicates that the probability that this will occur is 22.2%.

Establish Xilinx Inc. Covered Calls

2012-01-25T11:37:00.007-05:00

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Xilinx Inc.(XLNX) covered calls as follows:

Established Xilinx Inc.(XLNX) Covered Calls for Feb2012:
01/25/2012 Bought 300 XLNX @ $35.30
01/25/2012 Sold 3 XLNX Feb2012 $34.00 Calls @ $1.60

Xilinx (along with Altera) is a primary company in the near-duopoly market for Programmable Logic Devices (PLDs), a sub-industry within the Semiconductor industry. Xilinx recently reported 4th quarter earnings results that exceeded estimates.

This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend of $.19 with an ex-dividend date of Feb 6th. If the current $.30 [$1.60-($35.30-$34.00)] time value (i.e. extrinsic value) remaining in the short call option decays to less than $.19 by Feb 5th, then there is some possibility that the call options owner will exercise early and will call the stock away to capture the dividend. As shown below, two potential returns for this position are:
+18.2% annualized return if the stock is assigned at Feb2012 expiration
+20.0% annualized return if the stock is assigned early
This Covered Calls Advisor has a slight preference that the options owner is enticed to exercise early -- which would result in a somewhat higher annualized return-on-investment for this position. My thanks to Ed Boot, who described this strategy in a post on the JustCoveredCalls Yahoo! Group site.

Two possible overall performance results(including commissions) for the Xilinx Inc.(XLNX) transactions would be as follows:
Stock Purchase Cost: $10,598.95
= ($35.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$468.80
= ($1.60*300 shares) - $11.20 commissions
(b) Dividend Income (If stock assigned at Feb2012 expiration): +$57.00
= $.19 per share x 300 shares
(b) Dividend Income (If option exercised early on day prior to Feb 6th ex-div date): +$0.00
(c) Capital Appreciation (If stock assigned at $34.00): -$398.95
+($34.00-$35.30)*300 - $8.95 commissions

Total Net Profit(If stock assigned at Feb2012 expiration): +$126.85
= (+$468.80 +$57.00 -$398.95)
Total Net Profit(If option exercised on day prior to Feb 6th ex-div date): +$69.85
= (+$468.80 +$0.00 -$398.95)

1. Absolute Return (If stock assigned at Feb2012 expiration): +1.2%
= +$126.85/$10,598.95
Annualized Return (If stock assigned at Feb2012 expiration): +18.2%
= (+$126.85/$10,598.95)*(365/24 days)

2. Absolute Return (If option exercised on day prior to Feb 6th ex-div date): +0.7% = +$69.85/$10,598.95
Annualized Return (If option exercised early): +20.0%
= (+$675.85/$10,598.95)*(365/12 days)

The downside breakeven price at expiration is at $33.70 ($35.30 - $1.60).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2012 options expiration) for this Xilinx Inc.(XLNX) covered calls position is 72.7%. This compares with a probability of profit of 50.3% for a buy-and-hold of Xilinx over the same time period.

The upside crossover price at expiration is $35.79 ($34.00 + $1.60 +$.19 dividend).
This is the price above which it would have been more profitable to simply buy-and-hold XLNX stock until Feb 17, 2012 (the Feb2012 options expiration date) rather than holding the covered calls position.

The potential annualized returns in this position are attractive, but somewhat less than the desired +25% minimum annualized ROI that the Covered Calls Advisor prefers when establishing a covered calls position. The Implied Volatility (IV) in the XLNX options was 23.5 when these options were sold today. To reach the +25% minimum ROI threshold, equities with somewhat higher IVs will be targeted for applying this strategy in the future.

Establish Juniper Networks Inc. Covered Calls

2012-01-24T11:35:00.005-05:00

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Juniper Networks Inc.(JNPR) covered calls as follows:

Established Juniper Networks Inc.(JNPR) Covered Calls for Feb2012:
01/24/2012 Bought 300 JNPR @ $22.89
01/24/2012 Sold 3 JNPR Feb2012 $23.00 Calls @ $1.15

Two possible overall performance results(including commissions) for the Juniper Networks Inc.(JNPR) transactions would be as follows:

Stock Purchase Cost: $6,875.95
= ($22.89*300+$8.95 commission)

Net Profit:
(a) Options Income: +$333.80
= ($1.15*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $22.89): -$8.95
= ($22.89-$222.89)*300 - $8.95 commissions
(c) Capital Appreciation (If JNPR above $23.00 at Feb2012 expiration): +$24.05
+($23.00-$22.89)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $22.89): +$324.85
= (+$333.80 +$0.00 -$8.95)
Total Net Profit(If stock price above $23.00 at Feb2012 options expiration): +$357.85= (+$333.80 +$0.00 +$24.05)

1. Absolute Return if Unchanged at $22.89: +4.7%
= +$324.85/$6,875.95
Annualized Return If Unchanged (ARIU): +69.0%
= (+$324.85/$6,875.95)*(365/25 days)

2. Absolute Return (If stock price above $23.00 at Feb2012 options expiration): +5.2%= +$357.85/$6,875.95
Annualized Return (If stock price above $23.00 at expiration): +76.0%
= (+$357.85/$6,875.95)*(365/25 days)

The downside breakeven price at expiration is at $21.74 ($22.89 - $1.15). Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2012 options expiration) for this Juniper Networks covered calls position is 68.1%. This compares with a probability of profit of 51.0% for a buy-and-hold of Juniper over the same time period.

The upside crossover price at expiration is $24.04 ($22.89 + $1.15).
This is the price above which it would have been more profitable to simply buy-and-hold JNPR until Feb 17, 2012 (the Feb2012 options expiration date) rather than holding the covered calls position.

Sold 100% Cash-Secured Puts -- Market Vectors Gold Miners ETF

2012-01-24T10:29:00.007-05:00

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Market Vectors Gold Miners ETF (Symbol GDX) with a Feb2012 expiration.

The transaction was as follows:
01/24/2012 Sold 3 Market Vectors Gold Miners ETF (GDX) Feb2012 $52.00 Put Options @ $1.58
Note: the price of GDX was $51.99 today when these puts were sold.

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.

Two possible overall performance results(including commissions) for this Market Vectors Gold Miners ETF (GDX) transaction would be as follows:
100% Cash-Secured Cost Basis: $15,600.00
= $52.00*300

Net Profit:
(a) Options Income: +$462.80
= ($1.58*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GDX price unchanged at $51.99 and thus assigned at $52.00 at expiration): -$11.95
= ($51.99-$52.00)*300 - $8.95 commissions
(c) Capital Appreciation (If GDX above $52.00 at Feb2012 expiration): -$8.95
= ($22.00-$22.00) -$8.95 commissions

Total Net Profit(If GDX price unchanged at $51.99): +$450.85
= (+$462.80 +$0.00 -$11.95)
Total Net Profit(If GDX above $52.00 at Feb2012 options expiration): +$453.85
= (+$462.80 +$0.00 -$8.95)

1. Absolute Return if Unchanged at $51.99: +2.9%
= +$450.85/$15,600.00
Annualized Return If Unchanged (ARIU): +42.2%
= (+$450.85/$15,600.00)*(365/25 days)

2. Absolute Return (If GDX above $52.00 at Feb2012 options expiration and put options thus expire worthless): +2.9%
= +$453.85/$15,600.00
Annualized Return (If stock price above $22.00 at expiration): +42.5%
= (+$453.85/$15,600.00)*(365/25 days)

The downside breakeven price at expiration is $50.42 ($52.00 - $1.58).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2012 options expiration) for this Market Vectors Gold Miners ETF position is 67.3%. This compares with a probability of profit of 51.0% for a buy-and-hold of GDX over the same time period.

The upside crossover price at expiration is $53.58 ($52.00 + $1.58).
This is the price above which it would have been more profitable to simply buy-and-hold GDX until Feb 17, 2012 (the Feb2012 options expiration date) rather than selling the put options.

January 2012 Expiration Results

2012-01-21T20:29:00.006-05:00

The Covered Calls Advisor Portfolio (CCAP) contained nine covered calls positions with January 2012 expirations. On yesterday's options expiration Friday, all nine positions were in-the-money. As posted on this blog yesterday, three of these positions (iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, and iShares MSCI South Korea ETF) were rolled up and out to Feb2012 covered calls.

Six covered calls positions (Citigroup, Halliburton, iShares MSCI Taiwan ETF, Morgan Stanley, Mylan Inc., and Peabody Energy) were in-the-money and the stocks were assigned (i.e. stock called away) upon options expiration yesterday. The detailed transactions history and financial results for these closed positions is as follows:

1. Citigroup Inc.(C) -- Closed
The transaction history is as follows:
10/26/2011 Sold 3 Citigroup, Inc.(C) Nov2011 $31.00 Put Options @ $1.96
Note: the price of Citi stock was $30.42 today when these puts were sold.
11/19/2011 Nov2011 Options Expired.
Note: the price of Citi stock was $26.28 upon options expiration.
11/30/2011 Sold 3 Dec2011 $27.00 call options @ $1.09
Note: the price of Citigroup stock was $26.61 when these options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Citigroup was $26.03 upon options expiration.
12/21/2011 Sold 3 Jan2012 $28.00 calls @$.99
Note: the price of Citi was $27.02 when these options were sold.
01/21/2012 Jan2012 options assigned and stock sold at $28.00.
Note: the price of Citi was $29.64 at options expiration.

The overall performance result(including commissions) for these Citigroup Inc.(C) transactions was as follows:
100% Cash-Secured Cost Basis: $9,300.00
= $31.00*300

Net Profit:
(a) Options Income: +$1,178.40
= (300*($1.96+$1.09+$.99) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $28.00): -$908.95
= ($28.00-$31.00)*300 - $8.95 commissions

Total Net Profit (Stock assigned at $28.00): +$269.45
= (+$1,178.40 +$0.00 -$908.95)

Absolute Return (Stock assigned at $28.00 at expiration): +2.9%
= +$269.45/$9,300.00
Annualized Return: +12.2%
= (+$269.45/$9,300.00)*(365/87 days)

2. Halliburton Co.(HAL) -- Closed
The transaction history is as follows:
10/26/2011 Sold 3 Halliburton Co.(HAL) Nov2011 $36.00 Put Options @ $2.06
Note: the price of HAL stock was $35.56 today when these puts were sold.
11/19/2011 Nov2011 Options Expired.
Note: the price of Halliburton stock was $35.96 upon options expiration.
11/30/2011 Ex-Dividend payment of $27.00 = $.09 * 300 shares
11/30/2011 Sold 3 Dec2011 $37.00 call options @ $1.05
Note: the price of Halliburton Co. stock was $35.99 when these options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Halliburton was $31.76 upon options expiration.
01/03/2012 Sold 3 Jan2012 $35.00 call options @ $1.06
Note: the price of Halliburton was $34.48 when these options were sold.
01/21/2012 Jan2012 options assigned and stock sold at $35.00.
Note: the price of Halliburton was $36.20 at options expiration.

The overall performance results(including commissions) for this Halliburton Co.(HAL) position was as follows:
100% Cash-Secured Cost Basis: $10,800.00
= $36.00*300

Net Profit:
(a) Options Income: +$1,217.40
= ($2.06 + $1.05 + $1.06)*300 shares - 3*$11.20 commissions
(b) Dividend Income: +$27.00 ($.09*300 shares)
(c) Capital Appreciation (HAL stock assigned at $35.00 at Jan2012 expiration):
-$308.95 = ($35.00-$36.00)*300 -$8.95 commissions

Total Net Profit(Stock assigned at $35.00): +$935.45
= (+$1,217.40 +$27.00 -$308.95)

Absolute Return (Stock assigned at $35.00): +8.7%
= +$935.45/$10,800.00
Annualized Return (Stock assigned at $35.00 at expiration): +36.3%
= (+$935.45/$10,800.00)*(365/87 days)

3. iShares MSCI Taiwan ETF (EWT) -- Closed
The transactions history is as follows:
07/18/2011 Bought 1,000 EWT @ $14.65
07/19/2011 Sold 10 EWT Aug2011 $15.00 Calls @ $.31
Note: The price of EWT was $14.85 today when the options were sold.
08/20/2011 Aug2011 Options Expired.
08/31/2011 Sold 10 EWT Sep2011 $14.00 Calls @$.29
Note: The price of EWT was $13.89 when these call options were sold.
09/17/2011 Sep2011 EWT options expired.
09/20/2011 Sold 10 EWT Oct2011 $13.00 Calls @ $.32
10/22/2011 Oct2011 options expired.
10/26/2011 Sold 10 EWT Nov2011 $13.00 Calls @ $.39
11/19/2011 Nov2011 EWT options expired.
11/30/2011 Sold 10 EWT Dec2011 $12.00 Calls @ $.29
12/17/2011 Dec2011 Options Expired.
Note: the price of EWT was $11.21 upon options expiration.
12/20/2011 Ex-Distribution $472.80 = $.4728 * 1,000 shares
01/03/2012 Sold 10 EWT Jan2012 $12.00 call options @ $.22
Note: the price of EWT was $11.87 when these options were sold.
01/21/2012 Jan2012 options assigned and stock sold at $12.00.
Note: the price of EWT was $12.46 at options expiration.

The overall performance results(including commissions) for these EWT transactions was as follows:
Stock Purchase Cost: $14,650.95
= ($14.65*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$1,721.30
= (1,000*($.31+$.29+$.32+$.39+$.29+$.22) - 6*$16.45 commissions)
(b) Dividend Income: +$472.80 = $.4728 * 1,000 shares
(c) Capital Appreciation (EWT assigned at $12.00): -$2,658.95
= ($12.00-$14.65)*1,000 - $8.95 commissions

Total Net Profit(EWT assigned at $12.00): -$464.85
= (+$1,721.30 +$472.80 -$2,658.95)

Absolute Return if Assigned at $12.00: -3.2%
= -$464.85/$14,650.95
Annualized Return If Assigned (ARIA) -6.2%
= (-$464.85/$14,650.95)*(365/187 days)

4. Morgan Stanley (MS) -- Closed
The transactions history is as follows:
10/26/2011 Sold 6 Morgan Stanley (MS) Nov2011 $17.00 Put Options @ $1.16
Note: the price of MS stock was $16.82 today when these puts were sold.
11/19/2011 Nov2011 MS put options exercised -- 600 shares MS purchased @ $17.00.
11/30/2011 Sold 6 MS Dec2011 $15.00 Calls @ $.44
Note: the price of MS was $14.18 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Morgan Stanley was $14.98 upon options expiration.
12/21/2011 Sold 6 Jan2012 $16.00 calls @$.69
Note: the price of MS was $15.39 when these options were sold.
01/21/2012 Jan2012 MS options assigned and stock sold at $16.00.
Note: the price of MS was $18.39 at options expiration.

The overall performance results(including commissions) for this Morgan Stanley (MS) position was as follows:
100% Cash-Secured Cost Basis: $10,200.00
= $17.00*600

Net Profit:
(a) Options Income: +$1,333.65
= ($1.16+$.44+$.69)*600 shares - 3*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $15.39): -$974.95
= ($15.39-$17.00)*600 - $8.95 commissions
(c) Capital Appreciation (If MS stock assigned at $16.00 at Jan2012 expiration):
-$608.95 = ($16.00-$17.00)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $15.39): +$358.70
= (+$1,333.65 +$0.00 -$974.95)
Total Net Profit(If stock price above $16.00 at Jan2012 options expiration): +$724.70
= (+$1,333.65 +$0.00 -$608.95)

1. Absolute Return if Unchanged at $15.39: +3.5%
= +$358.70/$10,200.00
Annualized Return If Unchanged (ARIU): +14.8%
= (+$358.70/$10,200.00)*(365/87 days)

2. Absolute Return (Stock price above $16.00 at Jan2012 options expiration): +7.1%
= +$724.70/$10,200.00
Annualized Return (Stock price above $16.00 at expiration): +29.8%
= (+$724.70/$10,200.00)*(365/87 days)

5. Mylan Inc.(MYL) -- Closed
The transaction history is as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.
08/20/2011 Aug2011 MYL options exercised and stock purchased at $23.00 per share.
08/22/2011 Sold 5 MYL Sep2011 $22.00 Calls @ $.46
09/17/2011 Sep2011 MYL options expired.
09/20/2011 Sold 5 MYL Oct2011 $22.00 Calls @ $.63
Note: The price of MYL was $20.48 when these call options were sold.
10/22/2011 Oct2011 options expired.
Note: the MYL price was $18.04 at option expiration.
10/24/2011 Sold 5 MYL Nov2011 $19.00 Call Options @ $.56
Note: the price of MYL was $18.08 when the options were sold.
11/19/2011 Nov2011 MYL options expired.
11/30/2011 Sold 5 MYL Jan2011 $20.00 Calls @ $1.11
Note: the price of MYL was $19.38 today when these call options were sold.
01/21/2012 Jan2012 MYL options assigned and stock sold at $20.00.
Note: the price of MYL was $21.56 at options expiration.

The overall performance results(including commissions) for these Mylan Inc. transactions was as follows:
Stock Purchase Cost: $11,508.95
= ($23.00*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,846.50
= 500*($1.06+$.46+$.63+$.56+$1.11) - 5*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MYL exercised at $20.00): -$1,508.95
= ($20.00-$23.00)*500 - $8.95 commissions

Total Net Profit(MYL assigned at $20.00): +$337.55
= (+$1,846.50 +$0.00 -$1,508.95)

Absolute Return (Stock Assigned at $20.00): +2.9%
= +$337.55/$11,508.95
Annualized Return: +5.7%
= (+$337.55/$11,508.95)*(365/187 days)

6. Peabody Energy Corp.(BTU) -- Closed
The transaction history is as follows:
09/19/2011 Bought 300 shares BTU at $44.208
09/19/2011 Sold 3 BTU Oct2011 $47 Calls @ $1.67
10/22/2011 Oct2011 options expired.
Note: the BTU price was $38.89 at option expiration.
10/24/2011 Sold 3 BTU Nov2011 $41.00 Call Options @ $1.85
Note: the price of BTU was $40.40 when the options were sold.
11/19/2011 Nov2011 BTU options expired.
11/30/2011 Sold 3 BTU Dec2011 $39.00 Calls @ $1.10
Note: the price of BTU was $37.90 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of BTU was $32.98 upon options expiration.
01/03/2012 Sold 3 BTU Jan2012 $35.00 call options @ $1.59
Note: the price of BTU was $35.34 when these options were sold.
01/21/2012 Jan2012 BTU options assigned and stock sold at $35.00.
Note: the price of BTU was $37.85 at options expiration.

The overall performance results(including commissions) for this Peabody Energy Corp.(BTU) position was as follows:
Stock Purchase Cost: $13,271.35
= ($44.208*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,818.20
= (300*($1.67+$1.85+$1.10+$1.59) - 4*$11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (Stock assigned at $35.00): -$2,771.35
= ($35.00-$44.208)*300 - $8.95 commissions

Total Net Profit (Stock assigned at $35.00): -$953.15
= (+$1,818.20 +$0.00 -$2,771.35)

Absolute Return (BTU stock assigned at $35.00 at expiration): -7.2%
= -$953.15/$13,271.35
Annualized Return: -21.1%
= (-$953.15/$13,271.35)*(365/124 days)

Where Are We Now on the Emotional Roller Coaster of Investing?

2012-01-21T09:52:00.021-05:00

Periodically, I like to re-visit the Emotional Roller Coaster of Investing to think about where we are in the cycle. The chart below shows how different emotional states of investors change with the stock market. The green sections are normally bullish times to be invested whereas the red portions are bearish times.

Many studies have documented how individual investors, and even professionals, chase performance. When markets are doing well, investors get less concerned about risk and put their money to work in investments that have been doing well recently. Too often that means investing while looking through a rearview mirror. Unfortunately, that is often opposite of what we should be doing. This reality is confirmed by three of the most renowned investors of the past century:
- "The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell" -- John Templeton
- "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful" -- Warren Buffett
- "I have every confidence in the threefold merit of this general method based on (a) sound logic, (b) simplicity of application, and (c) an excellent supporting record. At bottom it is a technique by which true investors can exploit the recurrent excessive optimism and excessive apprehension of the speculative public." -- Benjamin Graham

So, Where Are We Now on the Emotional Roller Coaster of Investing?
My own assessment is that we are now transitioning from 'hope' to 'relief'. To better understand the various stages, let's consider how investors' emotions have corresponded to our recent stock market history. The bull market 'euphoria' ended in October 2007 when the Dow peaked at slightly about 14,000. During the winter of 2007/2008, 'unease' began to set in as the Dow declined below its 200-day moving average. In the Spring of 2008 a decline in real estate values began to become apparent and investors transitioned to the 'denial' stage since it was so hard to believe that our long-held assumption of neverending increases in the value of real estate then appeared to be in jeopardy. 'Pessimism' ensued as the stock market continued its steady decline into the summer as the credit crunch became more apparent and the price of oil reached $150 per barrel. 'Panic' occurred in the autumn of 2008 with financial bailouts of some large banks; and culminated in the September bankruptcy of Lehman Brothers. The stock markets' steep decline continued through the winter of 2008/2009 with 'capitulation' occurring from late January to early March of 2009 when the market quickly declined by another 20%. Investors were clearly in 'despair' as the Dow reached its closing low of 6,547 on March 9th, 2009. It is said that "Hindsight is 20/20", but that low point turned out to be what John Templeton called "the time of maximum pessimism" and thus "the best time to buy".

During the 2 years and 10 months since that March 2009 low, the market has rebounded 94% to its current level of 12,720. During this period, the market has been climbing the proverbial "wall of worry". Investors have had 'hope' that the worst was over, but nevertheless continued to fear a return of the bear market. My current belief is that the strongly bullish stock market move during the last month is signaling the transition from 'hope' to 'relief'. As 4th quarter earnings continue to be released, it is becoming increasingly apparent that earnings are continuing to grow (albeit at a somewhat slower increase) and that the likelihood of a return to recession in 2012 is low.

If we are now entering the 'relief' stage, then the next question would be: What would enable us to move to the next stage of 'optimism'? My first caveat is that it is unrealistic to expect to accurately forecast future events. But my gut feeling is that we will continue in 'relief' throughout 2012. Europe will likely be in a mild recession. The U.S. GDP will likely grow at a relatively modest 2-3% while Emerging Markets growth will slow slightly, but their GDP will grow very nicely at about the 5% level. With the expected continuation of relatively low inflation, a worldwide GDP growth average of about 3% is supportive of an expectation of continued modest growth in stock prices in 2012 -- perhaps in the 8% to 12% range for the year. This viewpoint is also consistent with the Covered Calls Advisor's current Overall Market Meter rating of Slightly Bullish (see right sidebar).

The Presidential campaigns leading up to the election in November this year is likely to be more hostile than ever; and also a very closely contested one. The uncertainty surrounding the widely different viewpoints of the two candidates will tend to cause investors to be uncertain about the future and therefore cautious with their investments. Despite the 94% rebound, investors remain cautious and now continue to invest moreso in bonds than in stocks, despite the exceedingly low rates available from bonds. I don't expect investors' sentiment to change until after the election. In early 2013, as policy priorities and legislative changes become more apparent, it is possible that a transition from 'relief' to 'optimism' could occur. Of course, it is also possible that rather than advancing to 'optimism', 'relief' could jump directly to 'unease' (or some other place on the roller coaster). In the mean time, we remain in the green section of the emotional roller coaster -- where a slightly bullish investing posture seems most appropriate.

I hope this article is helpful in stimulating your own thinking about the current state of the market and also the importance of not allowing our emotions to have an adverse effect on our investment decision-making.

Do you agree or disagree that we have now entered the 'relief' stage? Why?

As always, I welcome your comments. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar if you would prefer to keep your comments confidential.

Godspeed,
Jeff

Roll Up and Out -- iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, and iShares MSCI South Korea ETF

2012-01-20T19:57:00.003-05:00

Today was Jan2012 options expiration. With less than 30 minutes before the market close, three existing covered calls were rolled up and out to Feb2012 covered calls.
The advantage of waiting until this afternoon to roll these positions was to extract almost all of the extrinsic value from the short options before establishing the position for the next expiration month.

The detailed transactions history for these three covered calls positions as well as possible performance results are as follows:

1. iShares MSCI China ETF (FXI) -- Continuation Transactions
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.

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$4,358.40
= (1,000*($.49+$.37+$.71+$.65+$.47+$.86+$1.10-$.68+$.49) - 8*$12.70 commissions)
(b) Distribution Income: $767.95 = ($.68555+$.0794) * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $38.72 at expiration): -$6,088.95
= ($38.72-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If FXI assigned at $40.00 at expiration): -$4,808.95
= ($40.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $38.72 at expiration): -$962.90
= (+$4,358.40 +$767.95 -$6,088.95)
Total Net Profit (If FXI assigned at $40.00): +$317.40
= (+$4,358.40 +$767.95 -$4,808.95)

1. Absolute Return (If FXI unchanged at $38.72 at expiration): -2.1%
= -$962.90/$44,808.95
Annualized Return (If FXI unchanged at expiration): -2.6%
= (-$962.90/$44,808.95)*(365/306 days)

2. Absolute Return (If FXI assigned at $40.00 at expiration): +0.7%
= +$317.40/$44,808.95
Annualized Return If Assigned (ARIA): +0.8%
= (+$317.40/$44,808.95)*(365/306 days)

2. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.
08/20/2011 Aug2011 EEM options expired.
08/22/2011 Sold 5 EEM Sep2011 $42.00 Calls @ $.71
09/17/2011 Sep2011 EEM options expired.
09/20/2011 Sold 5 EEM Oct2011 $42.00 Calls @ $.63
Note: The price of EEM was $39.68 when these call options were sold.
10/22/2011 Oct2011 options expired.
10/26/2011 Sold 5 EEM Nov2011 $41.00 Calls @ $.78
11/19/2011 Nov2011 EEM options expired.
11/30/2011 Sold 5 EEM Dec2011 $41.00 Calls @ $.59
Note: the price of EEM was $39.71 today when these call options were sold.
12/20/2011 Ex-Distribution $173.48 = $.34696 * 500 shares
01/20/2012 Bought-to-Close 5 EEM Jan2012 $39.00 Calls @ $2.43
Note: the price of EEM was $41.41 when these call options were bought.
01/20/2012 Sold 5 EEM Feb2012 $42.00 Calls @ $.80
Note: the price of EEM was $41.50 today when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,820.70
= [500*($.83 +$.35+$.62+$.99+$.71+$.63+$.78+$.59-$2.43+$.80) - 9*$12.70 commissions]
(b) Distribution Income: $403.94 = ($.46092+$.34696) * 500 shares
(c) Capital Appreciation (If EEM unchanged at $41.50 at expiration): -$3,163.95
= ($41.50-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $42.00): -$2,913.95
= ($42.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $41.50 at expiration): -$939.31
= (+$1,820.70 +$403.94 -$3,163.95)
Total Net Profit (If EEM assigned at $42.00): -$689.31
= (+$1,820.70 +$403.94 -$2,913.95)

1. Absolute Return (If EEM price unchanged at $41.50 at expiration): -3.9%
= -$939.31/$23,913.95
Annualized Return if Unchanged at expiration (ARIU): -4.7%
= (-$939.31/$23,913.95)*(365/306 days)

2. Absolute Return (If EEM assigned at $42.00 at expiration): -2.9%
= -$689.31/$23,913.95
Annualized Return If Assigned (ARIA): -3.4%
= (-$689.31/$23,913.95)*(365/306 days)

3. iShares MSCI South Korea ETF (EWY) -- Continuation
The transactions history is as follows:
10/25/2011 Bought 800 EWY @ $54.62
10/25/2011 Sold 8 EWY Nov2011 $54.00 Calls @ $2.59
Note: these call options were sold with the price of EWY at $54.62
11/19/2011 Nov2011 EWY options expired.
11/30/2011 Sold 8 EWY Dec2011 $56.00 Calls @ $1.48
Note: the price of EWY was $55.38 today when these call options were sold.
12/20/2011 Ex-Distribution $298.41 = $.37301 * 800 shares
01/20/2012 Bought-to-Close 8 EWY Jan2012 $55.00 Calls @ $1.75
Note: the price of EWY was $56.73 when these call options were bought.
01/20/2012 Sold 8 EWY Feb2012 $57.00 Calls @ $1.50
Note: the price of EWY was $56.73 when these call options were sold.

Two possible overall performance results(including commissions) for the EWY position would be as follows:
Stock Purchase Cost: $43,704.95
= ($54.62*800+$8.95 commission)

Net Profit:
(a) Options Income: +$2,871.20
= (800*($2.59+$1.48-$.1.75+$1.50) - 3*$14.95 commissions)
(b) Dividend Income: +$298.41 = $.37301* 800 shares
(c) Capital Appreciation (If EWY price unchanged at $56.73): +$1,679.05
= ($56.73-$54.62)*800 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $57.00): +$1,895.05
= ($57.00-$54.62)*800 - $8.95 commissions

Total Net Profit (If EWY price unchanged at $56.73): +$4,848.66
= (+$2,871.20 +$298.41 +$1,679.05)
Total Net Profit(If EWY assigned at $57.00): +$5,064.66
= (+$2,871.20 +$298.41 +$1,895.05)

1. Absolute Return if Unchanged at $56.73: +11.1%
= +$4,848.66/$43,704.95
Annualized Return If Unchanged (ARIU): +34.9%
= (+$4,848.66/$43,704.95)*(365/116 days)

2. Absolute Return if Assigned at $57.00: +11.6%
= +$5,064.66/$43,704.95
Annualized Return If Assigned (ARIA): +36.5%
= (+$5,064.66/$43,704.95)*(365/116 days)

Overall Market Meter Rating Changes from "Neutral" to "Slightly Bullish"

2012-01-18T11:58:00.006-05:00

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 changed from Neutral to 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 greater than the 3.38 of last month. The 3.75 is a Slightly Bullish rating (range from 3.5 to 4.5). Six of the eight factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month. The factor that most influenced this month's change to Slightly Bullish (from Neutral) was Price Trend. The Price Trend indicator changed from Bearish to Bullish because the current price of the S&P 500 Index has now increased more than +5% above its 150-day SMA(Simple Moving Average) threshold. This factor will remain Bullish until the price of SPY moves to more than 5% below its 150-day SMA. The other factor that changed since last month's Overall Market Meter rating was Future Earnings Growth which declined from Slightly 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 January 2012 options expiration this week, newly established positions for February 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.

Godspeed,
Jeff

Best Book on Covered Calls

2012-01-16T09:04:00.007-05:00

I wholeheartedly recommend reading "Options for Volatile Markets" (2nd Edition) by Lehman and McMillan http://www.amazon.com/dp/1118022262/. With relatively few books available that are devoted primarily to covered calls, this book stands out as the best.

Since receiving it as a Christmas present, I have read through it twice. My book review on Amazon.com is replicated below. I will gladly raise my overall rating from 4 Stars to the maximum 5 Stars if the deficiencies cited in my review are corrected in subsequent printings of this book.
-------------------------------
4.0 out of 5 stars Much to Praise -- But Also a Major Flaw

PRAISE: First and foremost, I confidently assert that this book is the single best resource now available that is focused primarily on the subject of covered calls investing. To those who have read the 1st Edition of this book (titled "New Insights on Covered Call Writing"), this 2nd Edition is a substantial improvement. It is written with great clarity throughout and is worthwhile reading for anyone (from novice to expert) interested in covered calls and other closely-related hedging strategies. Some of the best features are:
1. Excellent definitions and explanations of options terminology; and especially insightful discussions of important topics such as time value decay, skews, implied volatility, and historic volatility.
2. A very good explanation of why a fear common to many newbie covered calls investors, namely early exercise, is largely unwarranted.
3. Thorough discussions related to position management (the authors call this "follow-up actions"), including various types of "rolling".
4. The section on "Basic Tax Rules for Options" is the best concise description I've seen anywhere on this topic.
5. Why it is critically important that investors develop knowledge of how "risk" and "volatility" should inform our investment decision-making process. Consideration of specific "traps" to be avoided is another especially strong feature of this book.
6. For investors interested in modifications to the basic covered calls strategy, hedging with protective puts, collars, and option spreads are also presented. Thankfully, the authors present these alternatives in a well-balanced manner, taking time to present both the pros and cons of each strategy.

CONCERNS:
1. I share the concern of some other reviewers that the revised title of this 2nd Edition is overly generic and therefore somewhat misleading. A more appropriate title would be something like "Covered Calls and Related Hedging Strategies".
2. Figure 6.4 is a very nice, visual way to portray the "Behavioral Impact of Covered Call Writing". But the stock price ranges are incorrect: "Good decision offset..." should be <$47, etc., etc.
3. Weekly options now exist for over 100 equities/ETFs and they continue to grow in both availability and popularity. Including commentary on the possible role of weeklies in the several instances when expiration timeframes are addressed throughout the book would definitely enhance the readers' overall understanding.

MAJOR FLAW: On pages 162-164, the authors present results from their own study of four strategies during 2007-2010. The results are summarized in Table 8.3. Unfortunately, there are errors in the "Total Period" column which will cause naïve readers to falsely conclude that the collar strategy provides substantially better returns than the other three strategies. Two of these errors are:
* The actual overall performance of SPY over these 3 3/4 years was -13.1%, not -17.3%.
* The +15.2% return claimed for the collar strategy defies basic common sense when compared with the returns presented for its related component parts, that is a covered calls return of +3.1% in combination with a put hedge return of -5.2%. We can also conclude that the +15.2% is also clearly inaccurate from a different viewpoint, since a time-weighted average of the flat period (+5.8%), down period(+0.4%), and up period (+16.7%) is much closer to +8.4% -- but definitely not +15.2%. This major flaw should be corrected prior to the next printing of this book. Further, to improve the validity of the results, the current 3 3/4 years backtest should be extended to a more rigorous minimum of 20 years.

Continuation Transactions -- Six Positions

2012-01-03T10:53:00.011-05:00

There are currently eleven holdings in the Covered Calls Advisor Portfolio. Covered calls with Jan2012 expirations were established previously for four of these holdings. Today, covered calls have been re-established on six holdings (Halliburton Co., iShares MSCI Emerging Markets ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Peabody Energy Corp., and Valero Energy Corp.).

The sole remaining holding that remains unhedged is Apple Inc. The Covered Calls Advisor is expecting Apple to report quarterly earnings numbers on January 24th that are well above analysts' consensus estimates. Therefore call options will not be sold against Apple stock until after this announcement.

The detailed transactions history for the six covered calls positions established today as well as possible performance results are as follows:

1. Halliburton Co.(HAL) -- Continuation
The transaction history is as follows:
10/26/2011 Sold 3 Halliburton Co.(HAL) Nov2011 $36.00 Put Options @ $2.06
Note: the price of HAL stock was $35.56 today when these puts were sold.
11/19/2011 Nov2011 Options Expired.
Note: the price of Halliburton stock was $35.96 upon options expiration.
11/30/2011 Ex-Dividend payment of $27.00 = $.09 * 300 shares
11/30/2011 Sold 3 Dec2011 $37.00 call options @ $1.05
Note: the price of Halliburton Co. stock was $35.99 when these options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Halliburton was $31.76 upon options expiration.
01/03/2012 Sold 3 Jan2012 $35.00 call options @ $1.06
Note: the price of Halliburton was $34.48 when these options were sold.

Two possible overall performance results(including commissions) for this Halliburton Co.(HAL) position would be as follows:
100% Cash-Secured Cost Basis: $10,800.00
= $36.00*300

Net Profit:
(a) Options Income: +$1,217.40
= ($2.06 + $1.05 + $1.06)*300 shares - 3*$11.20 commissions
(b) Dividend Income: +$27.00 ($.09*300 shares)
(c) Capital Appreciation (If stock price unchanged at $34.48): -$464.95
= ($34.48 - $36.00)*300 - $8.95 commissions
(c) Capital Appreciation (If HAL stock above $35.00 at Jan2012 expiration): -$308.95= ($35.00-$36.00)*300 -$8.95 commissions

Total Net Profit(If stock price unchanged at $34.48): +$779.45
= (+$1,217.40 +$27.00 -$464.95)
Total Net Profit(If stock above $35.00 at Jan2012 options expiration):+$935.45
= (+$1,217.40 +$27.00 -$308.95)

1. Absolute Return if Unchanged at $34.48: +7.2%
= +$779.45/$10,800.00
Annualized Return If Unchanged (ARIU): +30.3%
= (+$779.45/$10,800.00)*(365/87 days)

2. Absolute Return (If stock above $35.00 at Jan2012 options expiration): +8.7%
= +$935.45/$10,800.00
Annualized Return (If stock price above $36.00 at expiration): +36.3%
= (+$935.45/$10,800.00)*(365/87 days)

2. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transaction history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.
08/20/2011 Aug2011 EEM options expired.
08/22/2011 Sold 5 EEM Sep2011 $42.00 Calls @ $.71
09/17/2011 Sep2011 EEM options expired.
09/20/2011 Sold 5 EEM Oct2011 $42.00 Calls @ $.63
Note: The price of EEM was $39.68 when these call options were sold.
10/22/2011 Oct2011 options expired.
10/26/2011 Sold 5 EEM Nov2011 $41.00 Calls @ $.78
11/19/2011 Nov2011 EEM options expired.
11/30/2011 Sold 5 EEM Dec2011 $41.00 Calls @ $.59
Note: the price of EEM was $39.71 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of EEM was $37.16 upon options expiration.
12/20/2011 Ex-Distribution $173.45 = $.3469 * 500 shares
01/03/2012 Sold 5 Jan2012 $39.00 call options @ $.98
Note: the price of EEM was $39.05 when these options were sold.

A possible overall performance result(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$3,125.70
= [500*($.83 +$.35+$.62+$.99+$.71+$.63+$.78+$.59+$.98) - 9*$12.70 commissions]
(b) Distribution Income: $403.91 = ($.46092+$.3469) * 500 shares
(c) Capital Appreciation (If EEM assigned at $39.00 at expiration): -$4,413.95
= ($39.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM assigned at $39.00): -$884.34
= (+$3,125.70 +$403.91 -$4,413.95)

Absolute Return (If EEM assigned at $39.00 at expiration): -3.7%
= -$884.34/$23,913.95
Annualized Return If Assigned (ARIA): -4.9%
= (-$884.34/$23,913.95)*(365/278 days)

3. iShares MSCI South Korea ETF (EWY) -- Continuation
The transactions history is as follows:
10/25/2011 Bought 800 EWY @ $54.62
10/25/2011 Sold 8 EWY Nov2011 $54.00 Calls @ $2.59
Note: these call options were sold with the price of EWY at $54.62
11/19/2011 Nov2011 EWY options expired.
11/30/2011 Sold 8 EWY Dec2011 $56.00 Calls @ $1.48
Note: the price of EWY was $55.38 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of EWY was $51.38 upon options expiration.
12/20/2011 Ex-Distribution $298.40 = $.373 * 800 shares
01/03/2012 Sold 8 EWY Jan2012 $55.00 call options @ $1.07
Note: the price of EWY was $54.20 when these options were sold.

Two possible overall performance results(including commissions) for the EWY position would be as follows:
Stock Purchase Cost: $43,704.95
= ($54.62*800+$8.95 commission)

Net Profit:
(a) Options Income: +$4,067.15
= (800*($2.59+$1.48+$1.07) - 3*$14.95 commissions)
(b) Distribution Income: +$298.40
(c) Capital Appreciation (If EWY price unchanged at $54.20): -$344.95
= ($54.20-$54.62)*800 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $55.00): +$295.05
= ($55.00-$54.62)*800 - $8.95 commissions

Total Net Profit (If EWY price unchanged at $54.20): +$4,020.60
= (+$4,067.15 +$298.40 -$344.95)
Total Net Profit(If EWY assigned at $55.00): +$5,200.60
= (+$4,067.15 +$298.40 +$295.05)

1. Absolute Return if Unchanged at $54.20: +9.2%
= +$4,020.60/$43,704.95
Annualized Return If Unchanged (ARIU): +38.2%
= (+$4,020.60/$43,704.95)*(365/88 days)

2. Absolute Return if Assigned at $55.00: +11.9%
= +$5,200.60/$43,704.95
Annualized Return If Assigned (ARIA): +49.4%
= (+$5,200.60/$43,704.95)*(365/88 days)

4. iShares MSCI Taiwan ETF (EWT) -- Continuation
The transactions history is as follows:
07/18/2011 Bought 1,000 EWT @ $14.65
07/19/2011 Sold 10 EWT Aug2011 $15.00 Calls @ $.31
Note: The price of EWT was $14.85 today when the options were sold.
08/20/2011 Aug2011 Options Expired.
08/31/2011 Sold 10 EWT Sep2011 $14.00 Calls @$.29
Note: The price of EWT was $13.89 when these call options were sold.
09/17/2011 Sep2011 EWT options expired.
09/20/2011 Sold 10 EWT Oct2011 $13.00 Calls @ $.32
10/22/2011 Oct2011 options expired.
10/26/2011 Sold 10 EWT Nov2011 $13.00 Calls @ $.39
11/19/2011 Nov2011 EWT options expired.
11/30/2011 Sold 10 EWT Dec2011 $12.00 Calls @ $.29
12/17/2011 Dec2011 Options Expired.
Note: the price of EWT was $11.21 upon options expiration.
12/20/2011 Ex-Distribution $472.80 = $.4728 * 1,000 shares
01/03/2012 Sold 10 EWT Jan2012 $12.00 call options @ $.22
Note: the price of EWT was $11.87 when these options were sold.

Two possible overall performance results(including commissions) for the EWT transactions would be as follows:
Stock Purchase Cost: $14,650.95
= ($14.65*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$1,721.30
= (1,000*($.31+$.29+$.32+$.39+$.29+$.22) - 6*$16.45 commissions)
(b) Dividend Income: +$472.80 = $.4728 * 1,000 shares
(c) Capital Appreciation (If unchanged at $11.87): -$2,788.95
= ($11.87-$14.65)*1,000 - $8.95 commissions
(c) Capital Appreciation (If assigned at $12.00): -$2,658.95
= ($12.00-$14.65)*1,000 - $8.95 commissions

Total Net Profit(If EWT price unchanged at $11.87): -$594.85
= (+$1,721.30 +$472.80 -$2,788.95)
Total Net Profit(If EWT price assigned at $12.00): -$464.85
= (+$1,721.30 +$472.80 -$2,658.95)

Absolute Return if Unchanged at $11.87: -4.1%
= -$594.85/$14,650.95
Annualized Return If Unchanged (ARIU) -7.9%
= (-$594.85/$14,650.95)*(365/187 days)

Absolute Return if Assigned at $12.00: -3.2%
= -$464.85/$14,650.95
Annualized Return If Assigned (ARIA) -6.2%
= (-$464.85/$14,650.95)*(365/187 days)

5. Peabody Energy Corp.(BTU) -- Continuation
The transaction history is as follows:
09/19/2011 Bought 300 shares BTU at $44.208
09/19/2011 Sold 3 BTU Oct2011 $47 Calls @ $1.67
10/22/2011 Oct2011 options expired.
Note: the BTU price was $38.89 at option expiration.
10/24/2011 Sold 3 BTU Nov2011 $41.00 Call Options @ $1.85
Note: the price of BTU was $40.40 when the options were sold.
11/19/2011 Nov2011 BTU options expired.
11/30/2011 Sold 3 BTU Dec2011 $39.00 Calls @ $1.10
Note: the price of BTU was $37.90 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of BTU was $32.98 upon options expiration.
01/03/2012 Sold 3 BTU Jan2012 $35.00 call options @ $1.59
Note: the price of BTU was $35.34 when these options were sold.

Two possible overall performance results(including commissions) for this Peabody Energy Corp.(BTU) position would be as follows:
Stock Purchase Cost: $13,271.35
= ($44.208*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,818.20
= (300*($1.67+$1.85+$1.10+$1.59) - 4*$11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock assigned at $35.00): -$2,771.35
= ($35.00-$44.208)*300 - $8.95 commissions

Total Net Profit (If stock assigned at $35.00): -$953.15
= (+$1,818.20 +$0.00 -$2,771.35)

Absolute Return (If stock assigned at $35.00 at expiration): -7.2%
= -$953.15/$13,271.35
Annualized Return (If stock assigned at $39.00): -21.1%
= (-$953.15/$13,271.35)*(365/124 days)

6. Valero Energy Corp.(VLO) -- Continuation
The transaction history is as follows:
10/25/2011 Sold 4 Valero Energy Corp.(VLO) Nov2011 $22.00 Put Options @ $1.75
Note: the price of VLO stock was $21.26 today when these puts were sold.
11/19/2011 Nov2011 VLO put options exercised -- 400 shares VLO purchased @ $22.00.
11/30/2011 Sold 4 VLO Dec2011 $23.00 Calls @ $.61
Note: the price of VLO was $22.27 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of VLO was $20.52 upon options expiration.
01/03/2012 Sold 4 VLO Feb2012 $22.00 call options @ $.84
Note: the price of VLO was $21.04 when these options were sold.

Two possible overall performance results(including commissions) for this Valero Energy Corp.(VLO) transaction would be as follows:
100% Cash-Secured Cost Basis: $8,800.00
= $22.00*400

Net Profit:
(a) Options Income: +$1,244.15
= ($1.75+$.61+$.84)*400 shares - 3*$11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.04 at expiration): -$392.95
= ($21.04-$22.00)*400 - $8.95 commissions
(c) Capital Appreciation (If VLO stock above $23.00 at Dec2011 expiration): -$8.95
= ($22.00-$22.00)*400 -$8.95 commissions

Total Net Profit(If stock price unchanged at $21.04): +$851.20
= (+$1,244.15 +$0.00 -$392.95)
Total Net Profit(If stock price above $22.00 at Feb2012 options expiration):
+$1,235.20 = (+$1,244.15 +$0.00 -$8.95)

1. Absolute Return if Unchanged at $21.04: +9.7%
= +$851.20/$8,800.00
Annualized Return If Unchanged (ARIU): +30.4%
= (+$851.20/$8,800.00)*(365/116 days)

2. Absolute Return (If stock price above $22.00 at Feb2012 options expiration):
+14.0% = +$1,235.20/$8,800.00
Annualized Return (If stock price above $22.00 at expiration): +44.2%
= (+$1,235.20/$8,800.00)*(365/116 days)

Returns -- Through December 2011

2012-01-01T09:42:00.020-05:00

This Covered Calls Advisor blog began in September 2007. The performance results have been as follows:

The Covered Calls Advisor uses the Russell 3000 Index as a benchmark against which the Covered Calls Advisor Portfolio is compared. The table above shows that the Covered Calls Advisor Portfolio has outperformed the Russell 3000 benchmark by a total of 16.94% over the 4.3 years that this blog has existed. As shown above, the corresponding average compound annual return-on-investment outperformance of 3.85% per year. This average is within the Covered Calls Advisor's expected range of +3% to +5% outperformance for long-term results obtained from a well-managed covered calls investing program.

As also shown in the table above, the Covered Calls Advisor Portfolio (CCAP) underperformed the benchmark Russell 3000 index by 1.60 percentage points (-0.57% minus +1.03%) in calendar year 2011. The primary reason for this relative underperformance is the substantial underperformance of emerging market equities compared with U.S. equities during this period. The benchmark Russell 3000 index consists solely of U.S. stocks whereas the Covered Calls Advisor's Portfolio has contained about 30% exposure to international (primarily emerging market) equities. While this emerging markets exposure has penalized comparative performance during the past two years, the Covered Calls Advisor maintains a commitment to the long-run benefits of global investing, namely:
(1)Improved portfolio diversification; and most importantly
(2)Achieving overall portfolio return-on-investment outperformance.

As 2011 concludes, my wish for each of you is for a Happy and Prosperous New Year in 2012!

And remember the Covered Calls Advisor's motto: "Stick With Covered Calls".

Godspeed,
Jeff

Continuation Transactions -- Citigroup Inc. and Morgan Stanley

2011-12-22T10:48:00.002-05:00

Upon Dec2011 options expiration, all nine of the covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions in Citigroup Inc.(Symbol C) and Morgan Stanley (MS). The detailed transactions history for these positions as well as possible results are as follows:

1. Citigroup Inc.(C) -- Continuation
The transaction history is as follows:
10/26/2011 Sold 3 Citigroup, Inc.(C) Nov2011 $31.00 Put Options @ $1.96
Note: the price of Citi stock was $30.42 today when these puts were sold.
11/19/2011 Nov2011 Options Expired.
Note: the price of Citi stock was $26.28 upon options expiration.
11/30/2011 Sold 3 Dec2011 $27.00 call options @ $1.09
Note: the price of Citigroup stock was $26.61 when these options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Citigroup was $26.03 upon options expiration.
01/21/2011 Sold 3 Jan2012 $28.00 calls @$.99
Note: the price of Citi was $27.02 when these options were sold.

Two possible overall performance results(including commissions) for this Citigroup, Inc.(C) position would be as follows:
100% Cash-Secured Cost Basis: $9,300.00
= $31.00*300

Net Profit:
(a) Options Income: +$1,178.40
= ($1.96 + $1.09 + $.99) *300 shares - 3*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $27.02): -$1,202.95
= ($27.02-$31.00)*300 - $8.95 commissions
(c) Capital Appreciation (If Citigroup stock above $28.00 at Jan2012 expiration):
-$908.95
= ($28.00-$31.00) -$8.95 commissions

Total Net Profit(If stock price unchanged at $27.02): -$24.55
= (+$1,178.40 +$0.00 -$1,202.95)
Total Net Profit(If stock price above $28.00 at Jan2012 options expiration): +$269.45
= (+$1,178.40 +$0.00 -$908.95)

1. Absolute Return if Unchanged at $27.02: -0.3%
= -$24.55/$9,300.00
Annualized Return If Unchanged (ARIU): -1.1%
= (-$24.55/$9,300.00)*(365/87 days)

2. Absolute Return (If stock price above $28.00 at Jan2012 options expiration: +2.9%
= +$269.45/$9,300.00
Annualized Return (If stock price above $27.00 at expiration): +12.2%
= (+$269.45/$9,300.00)*(365/87 days)

2. Morgan Stanley (MS) -- Continuation
The transactions history is as follows:
10/26/2011 Sold 6 Morgan Stanley (MS) Nov2011 $17.00 Put Options @ $1.16
Note: the price of MS stock was $16.82 today when these puts were sold.
11/19/2011 Nov2011 MS put options exercised -- 600 shares MS purchased @ $17.00.
11/30/2011 Sold 6 MS Dec2011 $15.00 Calls @ $.44
Note: the price of MS was $14.18 today when these call options were sold.
12/17/2011 Dec2011 Options Expired.
Note: the price of Morgan Stanley was $14.98 upon options expiration.
01/21/2011 Sold 6 Jan2012 $16.00 calls @$.69
Note: the price of MS was $15.39 when these options were sold.

Two possible overall performance results(including commissions) for this Morgan Stanley (MS) transaction would be as follows:
100% Cash-Secured Cost Basis: $10,200.00
= $17.00*600

Net Profit:
(a) Options Income: +$1,333.65
= ($1.16+$.44+$.69)*600 shares - 3*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $15.39): -$974.95
= ($15.39-$17.00)*600 - $8.95 commissions
(c) Capital Appreciation (If MS stock assigned at $16.00 at Jan2012 expiration):
-$608.95 = ($16.00-$17.00)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $15.39): +$358.70
= (+$1,333.65 +$0.00 -$974.95)
Total Net Profit(If stock price above $16.00 at Jan2012 options expiration): +$724.70
= (+$1,333.65 +$0.00 -$608.95)

1. Absolute Return if Unchanged at $15.39: +3.5%
= +$358.70/$10,200.00
Annualized Return If Unchanged (ARIU): +14.8%
= (+$358.70/$10,200.00)*(365/87 days)

2. Absolute Return (If stock price above $16.00 at Jan2012 options expiration): +7.1%
= +$724.70/$10,200.00
Annualized Return (If stock price above $15.00 at expiration): +29.8%
= (+$724.70/$10,200.00)*(365/87 days)

Overall Market Meter Rating Remains at "Neutral"

2011-12-19T08:05:00.001-05:00

Each month during options expiration week, the Covered Calls Advisor re-calculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. This month, the Overall Market Meter rating remains unchanged at Neutral.

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 3.38 (see blue line in chart above) is identical with last month's overall rating. Moreover, all eight factors used to determine the Overall Market Meter rating remained unchanged from November's analysis.

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the nearest expiration month." So, now with the December 2011 options expiration having occurred, newly established positions for January 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.

Jeff

December 2011 Expiration Results

2011-12-19T06:51:00.002-05:00

The Covered Calls Advisor Portfolio (CCAP) contained a total of nine covered calls positions with December 2011 expirations. All nine positions in the CCAP (Apple Inc., Citigroup Inc., Halliburton Co., iShares MSCI Emerging Markets ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Morgan Stanley, Peabody Energy Corp., and Valero Energy) expired out-of-the-money. Decisions will be made to either sell these equities, or to keep them and sell calls to establish January 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.

Country Value Rankings

2011-12-07T10:39:00.002-05:00

About once a quarter, the Covered Calls Advisor calculates the seven factors used to determine the current "Country Value Rankings". Today's results (shown in the table below), provides a value-oriented and objective framework that assists this advisor to make decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's portfolio.

A comprehensive approach to asset allocation goes beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.); it should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Legendary investor John Templeton was a leader in advocating for developing a global-oriented value investing perspective to achieve investing outperformance.

Note: For expanded view, left click on this spreadsheet

The Country Value Rankings table above is based on a weighted-average ranking system. You will notice that there are seven categories (and one factor for each category) used in the analysis of each country as follows:

The next-to-last column on the Country Value Rankings spreadsheet shows the Weighted Average Summation Total for each country. It is interesting that the Top 5 countries are Asian -- China, Hong Kong, Taiwan, South Korea, and Malaysia. Thus, investments in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog) will be substantially overweighted in these higher rated countries. It should also be noted that the U.S. is ranked 16th of the 21 countries rated, so U.S.-based companies selected for investment will be those with significant exposure to sales in countries/regions with relatively high expected GDP Growth in 2012.

This Country Value Rankings spreadsheet is detailed in terms of both the methodolgy used and the resources used to capture the information for each country. If you are interested in these details and would like further information or clarification, please share your comments and questions in writing. They are always welcomed. Click the 'comments' link below to post your feedback. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog.

Hopefully, this information is helpful in your thinking and analysis of your own equities selection methods related to your covered calls investing process!

Regards and Godspeed to All,
Jeff

Continuation Transaction -- Apple Inc.

2011-12-02T10:48:00.003-05:00

Today, a decision was made to retain the 100 shares held in Apple Inc.(AAPL) and to establish a Dec2011 covered call position. The detailed transactions as well as some possible results for this investment are as follows:

Apple Inc.(AAPL) -- Continuation
The transactions history is as follows:
09/19/2011 Bought 100 shares AAPL at $396.544
09/19/2011 Sold 1 AAPL Oct2011 $410 Call Option @ $10.15
10/22/2011 Oct2011 option expired.
Note: the AAPL price was $392.87 at option expiration.
10/24/2011 Sold 1 AAPL Nov2011 $410 Call Option @ $7.20
Note: the price of AAPL was $399.10 when the option was sold.
11/19/2011 Nov2011 AAPL options expired.
11/30/2011 Sold 1 AAPL Dec2011 $400.00 Call @ $4.40
Note: the price of AAPL was $392.94 today when this call option was sold.

Some possible performance results(including commissions) for this AAPL position are as follows:
Stock Purchase Cost: $39,663.35
= ($396.544*100+$8.95 commission)

Net Profit:
(a) Options Income: +$2,145.90
= (100*($10.15+$7.20+$4.40) - 3*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $392.94): -$369.35
= ($392.94-$396.544)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $400.00 at expiration): +$336.65
= ($400.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock price unchanged at $392.94): +$1,776.55
= (+$2,145.90 +$0.00 -$369.35)
Total Net Profit (If stock assigned at $400.00): +$2,482.55
= (+$2,145.90 +$0.00 +$336.65)

1. Absolute Return (If stock price unchanged at $392.94): +4.5%
= +$1,776.55/$39,663.35
Annualized Return If Unchanged (ARIU) +18.4%
= (+$1,776.55/$39,663.35)*(365/89 days)

2. Absolute Return (If stock assigned at $400.00 strike price): +6.3%
= +$2,482.55/$39,663.35
Annualized Return If Assigned (ARIA): +25.7%
= (+$2,482.55/$39,663.35)*(365/89 days)

Returns -- Through November 2011

2011-11-30T19:48:00.006-05:00

1. November 2011 Year-to-Date Results:

As shown in the "Year-to-Date 2011" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has slightly underperformed the benchmark Russell 3000 index by .39 percentage points (-1.77% minus -1.38%) over the first eleven months of calendar year 2011.

CCAP Absolute Return (Jan 1st through November 30th, 2011) = -1.77%
($282,375.52-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st to November 30th, 2011) = -1.38% ($73.92-$74.95)/$74.95

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark were as follows:

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.

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.

As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating is "NEUTRAL". The corresponding investing strategy is to, on-average, sell 1% 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

Continuation Transactions -- Nine Covered Calls Positions

2011-11-30T12:24:00.016-05:00

Upon Nov2011 options expiration, eleven of the thirteen total covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for nine of these eleven equities (Citigroup Inc., Halliburton Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, iShares MSCI South Korea ETF, Morgan Stanley, Mylan Inc., Peabody Energy, and Valero Energy). The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. Citigroup Inc.(C) -- Continuation
The transaction history is as follows:
10/26/2011 Sold 3 Citigroup, Inc.(C) Nov2011 $31.00 Put Options @ $1.96
Note: the price of Citi stock was $30.42 today when these puts were sold.
11/19/2011 Nov2011 Options Expired.
Note: the price of Citi stock was $26.28 upon options expiration.
11/30/2011 Sold 3 Dec2011 $27.00 call options @ $1.09
Note: the price of Citigroup stock was $26.61 when these options were sold.

Two possible overall performance results(including commissions) for this Citigroup, Inc.(C) position would be as follows:
100% Cash-Secured Cost Basis: $9,300.00
= $31.00*300

Net Profit:
(a) Options Income: +$892.60
= ($1.96 + $1.09) *300 shares - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $26.61): -$1,325.95
= ($26.61-$31.00)*300 - $8.95 commissions
(c) Capital Appreciation (If Citigroup stock above $27.00 at Dec2011 expiration):
-$1,191.05
= ($27.00-$31.00) -$8.95 commissions

Total Net Profit(If stock price unchanged at $26.61): -$433.35
= (+$892.60 +$0.00 -$1,325.95)
Total Net Profit(If stock price above $27.00 at Dec2011 options expiration): -$298.45
= (+$892.60 +$0.00 -$1,191.05)

1. Absolute Return if Unchanged at $26.61: -4.7%
= -$433.35/$9,300.00
Annualized Return If Unchanged (ARIU): -32.7%
= (-$433.35/$9,300.00)*(365/52 days)

2. Absolute Return (If stock price above $27.00 at Dec2011 options expiration: -3.2%
= -$298.45/$9,300.00
Annualized Return (If stock price above $27.00 at expiration): -22.5%
= (-$298.45/$9,300.00)*(365/52 days)

2. Halliburton Co. -- Continuation
The transaction history is as follows:
10/26/2011 Sold 3 Halliburton Co.(HAL) Nov2011 $36.00 Put Options @ $2.06
Note: the price of HAL stock was $35.56 today when these puts were sold.
11/19/2011 Nov2011 Options Expired.
Note: the price of Halliburton stock was $35.96 upon options expiration.
11/30/2011 Ex-Dividend payment of $27.00 = $.09 * 300 shares
11/30/2011 Sold 3 Dec2011 $37.00 call options @ $1.05
Note: the price of Halliburton Co. stock was $35.99 when these options were sold.

Two possible overall performance results(including commissions) for this Halliburton Co.(HAL) position would be as follows:
100% Cash-Secured Cost Basis: $10,800.00
= $36.00*300

Net Profit:
(a) Options Income: +$910.60
= ($2.06 + $1.05)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$27.00 ($.09*300 shares)
(c) Capital Appreciation (If stock price unchanged at $35.99): -$11.95
= ($35.99 - $36.00)*300 - $8.95 commissions
(c) Capital Appreciation (If HAL stock above $37.00 at Dec2011 expiration): +$291.05= ($37.00-$36.00)*300 -$8.95 commissions

Total Net Profit(If stock price unchanged at $35.99): +$925.65
= (+$910.60 +$27.00 -$11.95)
Total Net Profit(If stock above $37.00 at Dec2011 options expiration):+$1,228.65
= (+$910.60 +$27.00 +$291.05)

1. Absolute Return if Unchanged at $35.99: +8.6%
= +$925.65/$10,800.00
Annualized Return If Unchanged (ARIU): +60.2%
= (+$925.65/$10,800.00)*(365/52 days)

2. Absolute Return (If stock above $37.00 at Dec2011 options expiration): +11.4%
= +$1,228.65/$10,800.00
Annualized Return (If stock price above $36.00 at expiration): +79.9%
= (+$1,228.65/$10,800.00)*(365/52 days)

3. iShares MSCI China ETF (FXI) -- Continuation
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

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$4,561.10
= (1,000*($.49+$.37+$.71+$.65+$.47+$.86+$1.10) - 7*$12.70 commissions)
(b) Distribution Income: $767.95 = ($.68555+$.0794) * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $36.42 at expiration): -$8,388.95
= ($36.42-$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 price unchanged at $36.42 at expiration): -$3,062.90
= (+$4,561.10 +$767.95 -$8,388.95)
Total Net Profit (If FXI assigned at $38.00): -$1,482.90
= (+$4,561.10 +$767.95 -$6,808.95)

1. Absolute Return (If FXI unchanged at $36.42 at expiration): -6.8%
= -$3,062.90/$44,808.95
Annualized Return (If FXI unchanged at expiration): -8.9%
= (-$3,062.90/$44,808.95)*(365/278 days)

2. Absolute Return (If FXI assigned at $38.00 at expiration): -3.3%
= -$1,482.90/$44,808.95
Annualized Return If Assigned (ARIA): -4.3%
= (-$1,482.90/$44,808.95)*(365/278 days)

4. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.
08/20/2011 Aug2011 EEM options expired.
08/22/2011 Sold 5 EEM Sep2011 $42.00 Calls @ $.71
09/17/2011 Sep2011 EEM options expired.
09/20/2011 Sold 5 EEM Oct2011 $42.00 Calls @ $.63
Note: The price of EEM was $39.68 when these call options were sold.
10/22/2011 Oct2011 options expired.
10/26/2011 Sold 5 EEM Nov2011 $41.00 Calls @ $.78
11/19/2011 Nov2011 EEM options expired.
11/30/2011 Sold 5 EEM Dec2011 $41.00 Calls @ $.59
Note: the price of EEM was $39.71 today when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$2,648.40
= [500*($.83 +$.35+$.62+$.99+$.71+$.63+$.78+$.59) - 8*$12.70 commissions]
(b) Distribution Income: $230.46 = $.46092 * 500 shares
(c) Capital Appreciation (If EEM unchanged at $39.71 at expiration): -$4,058.95
= ($39.71-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $41.00): -$3,413.95
= ($41.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $39.71 at expiration): -$1,180.09
= (+$2,648.40 +$230.46 -$4,058.95)
Total Net Profit (If EEM assigned at $41.00): -$535.09
= (+$2,648.40 +$230.46 -$3,413.95)

1. Absolute Return (If EEM price unchanged at $39.68 at expiration): -4.9%
= -$1,180.09/$23,913.95
Annualized Return if Unchanged at expiration (ARIU): -7.4%
= (-$1,180.09/$23,913.95)*(365/243 days)

2. Absolute Return (If EEM assigned at $41.00 at expiration): -2.2%
= -$535.09/$23,913.95
Annualized Return If Assigned (ARIA): -3.4%
= (-$535.09/$23,913.95)*(365/243 days)

5. iShares MSCI South Korea ETF (EWY) -- Continuation
The transactions history is as follows:
10/25/2011 Bought 800 EWY @ $54.62
10/25/2011 Sold 8 EWY Nov2011 $54.00 Calls @ $2.59
Note: these call options were sold with the price of EWY at $54.62
11/19/2011 Nov2011 EWY options expired.
11/30/2011 Sold 8 EWY Dec2011 $56.00 Calls @ $1.48
Note: the price of EWY was $55.38 today when these call options were sold.

Two possible overall performance results(including commissions) for the EWY position would be as follows:
Stock Purchase Cost: $43,704.95
= ($54.62*800+$8.95 commission)

Net Profit:
(a) Options Income: +$3,226.10
= (800*($2.59+$1.48) - 2*$14.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWY price unchanged at $55.38): +$599.05
= ($55.38-$54.62)*800 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $56.00): +$1,095.05
= ($56.00-$54.62)*800 - $8.95 commissions

Total Net Profit (If EWY price unchanged at $55.38): +$3,825.15
= (+$3,226.10 +$0.00 +$599.05)
Total Net Profit(If EWY assigned at $56.00): +$4,321.15
= (+$3,226.10 +$0.00 +$1,095.05)

1. Absolute Return if Unchanged at $55.38: +8.8%
= +$3,825.15/$43,704.95
Annualized Return If Unchanged (ARIU): +60.3%
= (+$3,825.15/$43,704.95)*(365/53 days)

2. Absolute Return if Assigned at $56.00: +9.9%
= +$4,321.15/$43,704.95
Annualized Return If Assigned (ARIA): +68.1%
= (+$4,321.15/$43,704.95)*(365/53 days)

6. Morgan Stanley -- Continuation
The transactions history is as follows:
10/26/2011 Sold 6 Morgan Stanley (MS) Nov2011 $17.00 Put Options @ $1.16
Note: the price of MS stock was $16.82 today when these puts were sold.
11/19/2011 Nov2011 MS put options exercised -- 600 shares MS purchased @ $17.00.
11/30/2011 Sold 6 MS Dec2011 $15.00 Calls @ $.44
Note: the price of MS was $14.18 today when these call options were sold.

Two possible overall performance results(including commissions) for this Morgan Stanley (MS) transaction would be as follows:
100% Cash-Secured Cost Basis: $10,200.00
= $17.00*600

Net Profit:
(a) Options Income: +$933.10
= ($1.16+$.44)*600 shares - 2*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $14.18): -$1,700.95
= ($14.18-$17.00)*600 - $8.95 commissions
(c) Capital Appreciation (If MS stock assigned at $15.00 at Dec2011 expiration):
-$1,208.95 = ($15.00-$17.00)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $14.18): -$767.85
= (+$933.10 +$0.00 -$1,700.95)
Total Net Profit(If stock price above $15.00 at Nov2011 options expiration): -$275.85
= (+$933.10 +$0.00 -$1,208.95)

1. Absolute Return if Unchanged at $14.18: -7.5%
= -$767.85/$10,200.00
Annualized Return If Unchanged (ARIU): -52.8%
= (-$767.85/$10,200.00)*(365/52 days)

2. Absolute Return (If stock price above $15.00 at Dec2011 options expiration): -2.7%
= -275.85/$10,200.00
Annualized Return (If stock price above $15.00 at expiration): -19.0%
= (-275.85/$10,200.00)*(365/52 days)

7. Mylan Inc. -- Continuation
The transaction history is as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.
08/20/2011 Aug2011 MYL options exercised and stock purchased at $23.00 per share.
08/22/2011 Sold 5 MYL Sep2011 $22.00 Calls @ $.46
09/17/2011 Sep2011 MYL options expired.
09/20/2011 Sold 5 MYL Oct2011 $22.00 Calls @ $.63
Note: The price of MYL was $20.48 when these call options were sold.
10/22/2011 Oct2011 options expired.
Note: the MYL price was $18.04 at option expiration.
10/24/2011 Sold 5 MYL Nov2011 $19.00 Call Options @ $.56
Note: the price of MYL was $18.08 when the options were sold.
11/19/2011 Nov2011 MYL options expired.
11/30/2011 Sold 5 MYL Jan2011 $20.00 Calls @ $1.11
Note: the price of MYL was $19.38 today when these call options were sold.

Two possible overall performance results(including commissions) for the Mylan Inc. transactions would be as follows:
Stock Purchase Cost: $11,508.95
= ($23.00*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,846.50
= 500*($1.06+$.46+$.63+$.56+$1.11) - 5*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MYL unchanged at $19.38):
-$1,818.95 = ($19.38-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MYL exercised at $20.00): -$1,508.95
= ($20.00-$23.00)*500 - $8.95 commissions

Total Net Profit(If MYL unchanged at $19.38): +$27.55
= (+$1,846.50 +$0.00 -$1,818.95)
Total Net Profit(If MYL exercised at $20.00): +$337.55
= (+$1,846.50 +$0.00 -$1,508.95)

1. Absolute Return if Unchanged at $19.38: +0.2%
= +27.55/$11,508.95
Annualized Return If Unchanged (ARIU): +0.5%
= (+27.55/$11,508.95)*(365/187 days)

2. Absolute Return if Assigned at $20.00: +2.9%
= +$337.55/$11,508.95
Annualized Return If Assigned (ARIA): +5.7%
= (+$337.55/$11,508.95)*(365/187 days)

8. Peabody Energy Corp. -- Continuation
The transaction history is as follows:
09/19/2011 Bought 300 shares BTU at $44.208
09/19/2011 Sold 3 BTU Oct2011 $47 Calls @ $1.67
10/22/2011 Oct2011 options expired.
Note: the BTU price was $38.89 at option expiration.
10/24/2011 Sold 3 BTU Nov2011 $41.00 Call Options @ $1.85
Note: the price of BTU was $40.40 when the options were sold.
11/19/2011 Nov2011 BTU options expired.
11/30/2011 Sold 3 BTU Dec2011 $39.00 Calls @ $1.10
Note: the price of BTU was $37.90 today when these call options were sold.

Two possible overall performance results(including commissions) for this Peabody Energy Corp.(BTU) position would be as follows:
Stock Purchase Cost: $13,271.35
= ($44.208*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,352.40
= (300*($1.67+$1.85+$1.10) - 3*$11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $37.90 at expiration): -$1,901.35
= ($37.90-$44.208)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $39.00): -$1,571.35
= ($39.00-$44.208)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at $37.90 at expiration): -$548.95
= (+$1,352.40 +$0.00 -$1,901.35)
Total Net Profit (If stock assigned at $39.00): -$218.95
= (+$1,352.40 +$0.00 -$1,571.35)

1. Absolute Return (If stock unchanged at $37.90 at expiration): -4.1%
= -$548.95/$13,271.35
Annualized Return (If stock unchanged at expiration): -17.0%
= (-$548.95/$13,271.35)*(365/89 days)

2. Absolute Return (If stock assigned at $39.00 at expiration): +0.5%
= +$62.25/$13,271.35
Annualized Return (If stock assigned at $39.00): +1.9%
= (+$62.25/$13,271.35)*(365/89 days)

9. Valero Energy Corp. -- Continuation
The transaction history is as follows:
10/25/2011 Sold 4 Valero Energy Corp.(VLO) Nov2011 $22.00 Put Options @ $1.75
Note: the price of VLO stock was $21.26 today when these puts were sold.
11/19/2011 Nov2011 VLO put options exercised -- 400 shares VLO purchased @ $22.00.
11/30/2011 Sold 4 VLO Dec2011 $23.00 Calls @ $.61
Note: the price of VLO was $22.27 today when these call options were sold.

Two possible overall performance results(including commissions) for this Valero Energy Corp.(VLO) transaction would be as follows:
100% Cash-Secured Cost Basis: $8,800.00
= $22.00*400

Net Profit:
(a) Options Income: +$920.10
= ($1.75+$.61)*400 shares - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $22.27 at expiration): +$99.05
= ($22.27-$22.00)*400 - $8.95 commissions
(c) Capital Appreciation (If VLO stock above $23.00 at Dec2011 expiration): +$391.05
= ($23.00-$22.00)*400 -$8.95 commissions

Total Net Profit(If stock price unchanged at $21.26): +$1,019.15
= (+$920.10 +$0.00 +$99.05)
Total Net Profit(If stock price above $23.00 at Dec2011 options expiration):
+$1,311.15 = (+$920.10 +$0.00 +$391.05)

1. Absolute Return if Unchanged at $22.27: +11.6%
= +$1,019.15/$8,800.00
Annualized Return If Unchanged (ARIU): +79.8%
= (+$1,019.15/$8,800.00)*(365/53 days)

2. Absolute Return (If stock price above $23.00 at Dec2011 options expiration):
+14.9% = +$1,311.15/$8,800.00
Annualized Return (If stock price above $23.00 at expiration): +102.6%
= (+$1,311.15/$8,800.00)*(365/53 days)

November 2011 Expiration Results

2011-11-21T07:57:00.002-05:00

The Covered Calls Advisor Portfolio (CCAP) contained a total of thirteen covered calls positions with November 2011 expirations, with the following results:

- Eleven positions in the CCAP (Apple Inc., Citigroup, Halliburton, iShares MSCI Emerging Markets ETF, iShares MSCI China ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Morgan Stanley, Mylan Inc., Peabody Energy Corp., and Valero Energy) expired out-of-the-money. Decisions will be made to either sell these equities, or to keep them and sell calls to establish December 2011 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.

- Two positions (Bunge Ltd. and International Paper Co.) were in-the-money and the stocks were assigned (i.e. stock called away) upon option expiration last Friday. The detailed history and return-on-investment results for these closed positions is as follows:

1. Bunge Ltd.(BG) -- Closed
The transaction history is as follows:
10/26/2011 Sold 3 Bunge Ltd.(BG) Nov2011 $60.00 Put Options @ $3.10
Note: the price of BG stock was $58.62 today when these puts were sold.
11/19/2011 3 BG Nov2011 $60.00 Put options expired.
Note: the price of BG was $60.83 upon close on November options expiration Friday.

The performance result(including commissions) for this Bunge Ltd.(BG)transaction was as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $60.00*300

Net Profit:
(a) Options Income: +$918.80
= ($3.10*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BG stock above $60.00 at Nov2011 expiration): +$0.00
= ($60.00-$60.00) -$0.00 commissions

Total Net Profit(Stock price above $60.00 at Nov2011 options expiration): +$918.80
= (+$918.80 +$0.00 +$0.00)

Absolute Return (Stock price above $60.00 at Nov2011 options expiration and put options thus expire worthless): +5.1%
= +$918.80/$18,000.00
Annualized Return: +77.6%
= (+$918.80/$18,000.00)*(365/24 days)

2. International Paper Co.(IP) -- Continuation Transaction
The transactions history is as follows:
09/19/2011 Bought 400 shares IP at $26.978
09/19/2011 Sold 4 IP Oct2011 $28 Calls @ $1.18
10/22/2011 Oct2011 options expired.
Note: the IP price was $25.93 at options expiration.
10/24/2011 Sold 4 IP Nov2011 $27.00 Call Options @ $.73
Note: the price of IP was $26.25 when the options were sold.
11/11/2011 Buy-to-Close 4 Nov2011 $27.00 Calls at $1.86
11/11/2011 Sell-to-Open 5 Dec2011 $28.00 Calls at $1.80
Note: the price of IP was $28.84 when this credit spread was transacted.
11/14/2011 Ex-Div $105.00 = $.2625 * 400 shares
11/19/2011 Nov2011 options expired.
Note: the price of IP was $28.02 at options expiration.

The overrall performance result(including commissions) for these International Paper Co.(IP) transactions was as follows:
Stock Purchase Cost: $10,800.15
= ($26.978*400+$8.95 commission)

Net Profit:
(a) Options Income: +$704.15
= (400*($1.18+$.73-$1.86+$1.80) - 3*$11.95 commissions)
(b) Dividend Income: +$105.00 = $.2625 * 400 shares
(c) Capital Appreciation (Stock assigned at $28.00): +$399.85
= ($28.00-$26.978)*400 - $8.95 commissions

Total Net Profit (Stock assigned at $28.00): +$1,209.00
= (+$704.15 +$105.00 +$399.85)

Absolute Return (Stock assigned at $28.00 at expiration): +11.2%
= +$1,209.00/$10,800.15
Annualized Return: +45.9%
= (+$1,209.00/$10,800.15)*(365/89 days)

This International Paper position demonstrates the triple-income potential of covered calls investing; by obtaining profit from all three potential profit sources available to covered calls investors, namely: (1) options income from selling calls; (2) dividend income; and (3) capital appreciation from an increase in the price of the underlying stock. Moreover, in this particular case, a total 11.2% absolute return was achieved from this 3-month investment (a 45.9% annualized return-on-investment) -- a very attractive result for an investment in a company in the low-growth Paper and Packaging industry.

Overall Market Meter Rating Remains at "Neutral"

2011-11-16T07:43:00.005-05:00

Roll Up and Out -- International Paper Co.

2011-11-11T15:35:00.003-05:00

International Paper goes ex-dividend next Monday with a $.2625 dividend. Today, with the price of IP at $28.84 at about 3:30 this afternoon, the four Nov2011 $27.00 covered calls were well in-the-money. At that time, there was only $.02 of extrinsic value (i.e. time value) remaining in the Nov2011 $27 options with eight days remaining until options expiration. The Covered Calls Advisor thought there was a strong likelihood that the Nov2011 $27s would be exercised and the stock would be called away. A decision was made to retain the IP stock and to roll-up-and-out to the Dec2011 $28.00 strike price. The related transactions were:

11/11/2011 Buy-to-Close 4 Nov2011 $27.00 Calls at $1.86
11/11/2011 Sell-to-Open 4 Dec2011 $28.00 Calls at $1.80
Note: the price of IP was $28.84 when this credit spread was transacted.

The overall transactions history and a possible return-on-investment result are detailed below:

1. International Paper Co.(IP) -- Continuation Transaction
The transactions history is as follows:
09/19/2011 Bought 400 shares IP at $26.978
09/19/2011 Sold 4 IP Oct2011 $28 Calls @ $1.18
10/22/2011 Oct2011 options expired.
Note: the IP price was $25.93 at option expiration.
10/24/2011 Sold 4 IP Nov2011 $27.00 Call Options @ $.73
Note: the price of IP was $26.25 when the options were sold.
11/11/2011 Buy-to-Close 4 Nov2011 $27.00 Calls at $1.86
11/11/2011 Sell-to-Open 5 Dec2011 $28.00 Calls at $1.80
Note: the price of IP was $28.84 when this credit spread was transacted.
11/14/2011 Ex-Div $105.00 = $.2625 * 400 shares

Two possible overall performance results(including commissions) for this International Paper Co.(IP) transaction would be as follows:
Stock Purchase Cost: $10,800.15
= ($26.978*400+$8.95 commission)

Net Profit:
(a) Options Income: +$704.15
= (400*($1.18+$.73-$1.86+$1.80) - 3*$11.95 commissions)
(b) Dividend Income: +$105.00 = $.2625 * 400 shares
(c) Capital Appreciation (If stock assigned at $28.00): +$399.85
= ($28.00-$26.978)*400 - $8.95 commissions

Total Net Profit (If stock assigned at $28.00): +$1,209.00
= (+$704.15 +$105.00 +$399.85)

Absolute Return (If stock assigned at $28.00 at expiration): +11.2%
= +$1,209.00/$10,800.15
Annualized Return (If stock assigned at $28.00): +45.9%
= (+$1,209.00/$10,800.15)*(365/89 days)

This position demonstrates the triple-income potential of covered calls investing; by obtaining profit from all three potential profit sources available to covered calls investors, namely: (1) options income from selling calls; (2) dividend income; and (3) capital appreciation from an increase in the price of the underlying stock. Moreover, in this particular case, a total 11.2% absolute return could be achieved from this 3-month investment (a 45.9% annualized return-on-investment) -- a very attractive result for an investment in a company in the low-growth, mundane Paper and Packaging industry.

Returns -- Through October 2011

2011-10-31T17:53:00.005-04:00

1. October 2011 Year-to-Date Results:

As shown in the "Year-to-Date 2011" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the benchmark Russell 3000 index by 1.70 percentage points (-2.73% minus -1.03%) over the first ten months of calendar year 2011.

CCAP Absolute Return (Jan 1st through October 31st, 2011) = -2.73%
($279,606.21-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through October 31st, 2011) = -1.03% = ($74.18-$74.95)/$74.95

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark were as follows:

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.

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. As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating remains "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

Sold 100% Cash-Secured Puts -- Bunge Ltd, Citigroup, Halliburton, and Morgan Stanley

2011-10-26T20:20:00.008-04:00

Today, the Covered Calls Advisor established new 100% Cash-Secured Puts positions in Bunge Ltd, Citigroup, Halliburton, and Morgan Stanley; each with Nov2011 expirations. The Covered Calls Advisor does not use margin, so the detailed information on these positions and some potential results shown below reflect the fact that these positions were established using 100% cash securitization for all four of these short put option positions.

1. Bunge Ltd.(BG) -- New Position
The transaction was as follows:
10/26/2011 Sold 3 Bunge Ltd.(BG) Nov2011 $60.00 Put Options @ $3.10
Note: the price of BG stock was $58.62 today when these puts were sold.

Two possible overall performance results(including commissions) for this Bunge Ltd.(BG)transaction would be as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $60.00*300

Net Profit:
(a) Options Income: +$918.80
= ($3.10*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $58.62 and thus stock assigned at $60.00 at expiration): -$422.95
= ($58.62-$60.00)*300 - $8.95 commissions
(c) Capital Appreciation (If BG stock above $60.00 at Nov2011 expiration): +$0.00
= ($60.00-$60.00) -$0.00 commissions

Total Net Profit(If stock price unchanged at $58.62): +$495.85
= (+$918.80 +$0.00 -$422.95)
Total Net Profit(If stock price above $60.00 at Nov2011 options expiration): +$918.80
= (+$918.80 +$0.00 +$0.00)

1. Absolute Return if Unchanged at $58.62: +2.8%
= +$495.85/$18,000.00
Annualized Return If Unchanged (ARIU): +41.9%
= (+$495.85/$18,000.00)*(365/24 days)

2. Absolute Return (If stock price above $60.00 at Nov2011 options expiration and put options thus expire worthless): +5.1%
= +$918.80/$18,000.00
Annualized Return (If stock price above $60.00 at expiration): +77.6%
= (+$918.80/$18,000.00)*(365/24 days)

2. Citigroup, Inc.(C) -- New Position
The transaction was as follows:
10/26/2011 Sold 3 Citigroup, Inc.(C) Nov2011 $31.00 Put Options @ $1.96
Note: the price of Citi stock was $30.42 today when these puts were sold.

Two possible overall performance results(including commissions) for this Citigroup, Inc.(C) transaction would be as follows:
100% Cash-Secured Cost Basis: $9,300.00
= $31.00*300

Net Profit:
(a) Options Income: +$576.80
= ($1.96*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $30.42 and thus stock assigned at $31.00 at expiration): -$182.95
= ($30.42-$31.00)*300 - $8.95 commissions
(c) Capital Appreciation (If Citigroup stock above $31.00 at Nov2011 expiration): +$0.00
= ($31.00-$31.00) -$0.00 commissions

Total Net Profit(If stock price unchanged at $30.42): +$393.85
= (+$576.80 +$0.00 -$182.95)
Total Net Profit(If stock price above $31.00 at Nov2011 options expiration): +$576.80
= (+$576.80 +$0.00 +$0.00)

1. Absolute Return if Unchanged at $30.42: +4.2%
= +$393.85/$9,300.00
Annualized Return If Unchanged (ARIU): +64.4%
= (+$393.85/$9,300.00)*(365/24 days)

2. Absolute Return (If stock price above $31.00 at Nov2011 options expiration and put options thus expire worthless): +6.2%
= +$576.80/$9,300.00
Annualized Return (If stock price above $31.00 at expiration): +94.3%
= (+$576.80/$9,300.00)*(365/24 days)

3. Halliburton Co.(HAL) -- New Position
The transaction was as follows:
10/26/2011 Sold 3 Halliburton Co.(HAL) Nov2011 $36.00 Put Options @ $2.06
Note: the price of HAL stock was $35.56 today when these puts were sold.

Two possible overall performance results(including commissions) for this Halliburton Co.(HAL) transaction would be as follows:
100% Cash-Secured Cost Basis: $10,800.00
= $36.00*300

Net Profit:
(a) Options Income: +$606.80
= ($2.06*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $35.56 and thus stock assigned at $36.00 at expiration): -$140.95
= ($35.56-$36.00)*300 - $8.95 commissions
(c) Capital Appreciation (If HAL stock above $36.00 at Nov2011 expiration): +$0.00
= ($36.00-$36.00) -$0.00 commissions

Total Net Profit(If stock price unchanged at $35.56): +$465.85
= (+$606.80 +$0.00 -$140.95)
Total Net Profit(If stock price above $36.00 at Nov2011 options expiration): +$606.80
= (+$606.80 +$0.00 +$0.00)

1. Absolute Return if Unchanged at $35.56: +4.3%
= +$465.85/$10,800.00
Annualized Return If Unchanged (ARIU): +65.6%
= (+$465.85/$10,800.00)*(365/24 days)

2. Absolute Return (If stock price above $36.00 at Nov2011 options expiration and put options thus expire worthless): +5.6%
= +$606.80/$10,800.00
Annualized Return (If stock price above $36.00 at expiration): +85.4%
= (+$606.80/$10,800.00)*(365/24 days)

4. Morgan Stanley (MS) -- New Position
The transaction was as follows:
10/26/2011 Sold 6 Morgan Stanley (MS) Nov2011 $17.00 Put Options @ $1.16
Note: the price of MS stock was $16.82 today when these puts were sold.

Two possible overall performance results(including commissions) for this Morgan Stanley (MS) transaction would be as follows:
100% Cash-Secured Cost Basis: $10,200.00
= $17.00*600

Net Profit:
(a) Options Income: +$682.55
= ($1.16*600 shares) - $13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $16.82 and thus stock assigned at $17.00 at expiration): -$116.95
= ($16.82-$17.00)*600 - $8.95 commissions
(c) Capital Appreciation (If MS stock above $17.00 at Nov2011 expiration): +$0.00
= ($17.00-$17.00) -$0.00 commissions

Total Net Profit(If stock price unchanged at $16.82): +$565.60
= (+$682.55 +$0.00 -$116.95)
Total Net Profit(If stock price above $17.00 at Nov2011 options expiration): +$682.55
= (+$682.55 +$0.00 +$0.00)

1. Absolute Return if Unchanged at $16.82: +5.5%
= +$565.60/$10,200.00
Annualized Return If Unchanged (ARIU): +84.3%
= (+$565.60/$10,200.00)*(365/24 days)

2. Absolute Return (If stock price above $17.00 at Nov2011 options expiration and put options thus expire worthless): +6.7%
= +$682.55/$10,200.00
Annualized Return (If stock price above $17.00 at expiration): +101.8%
= (+$682.55/$10,200.00)*(365/24 days)

Establish iShares MSCI South Korea ETF Covered Calls

2011-10-25T22:25:00.003-04:00

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI South Korea ETF (EWY) covered calls as follows:

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Nov2011:
10/25/2011 Bought 800 EWY @ $54.62
10/25/2011 Sold 8 EWY Nov2011 $54.00 Calls @ $2.59
Note: these call options were sold with the price of EWY at $54.62

A possible overall performance result(including commissions) for the EWY transaction would be as follows:
Stock Purchase Cost: $43,704.95
= ($54.62*800+$8.95 commission)

Net Profit:
(a) Options Income: +$2,057.05
= (800*$2.59 - $14.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWY assigned at $54.00): -$504.95
= ($54.00-$54.62)*800 - $8.95 commissions

Total Net Profit(If EWY assigned at $54.00): +$1,552.10
= (+$2,057.05 +$0.00 -$504.95)

Absolute Return if Assigned at $54.00: +3.6%
= +$1,552.10/$43,704.95
Annualized Return If Assigned (ARIA): +51.8%
= (+$1,552.10/$43,704.95)*(365/25 days)

Sold 100% Cash-Secured Puts -- Valero Energy Corp.

2011-10-25T21:46:00.002-04:00

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Valero Energy Corp.(VLO) with a Nov2011 expiration.

With total capacity of approximately 3.0 million barrels per day, Valero Energy Corp. is the largest petroleum refiner and marketer in the U.S. The company has the industry's most complex and sophisticated refining system. Most of its 16 refineries throughout the U.S., Canada and Aruba are able to process heavy, low-quality crude oil. The company has a growing network of retail outlets in the Great Plains, Southwest and Northeast.

VLO rates well above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 18.24 is above this advisor's required threshold of 16.0), so it was decided to establish a position in VLO with a Nov2011 expiration.

Note: Click on chart above for larger image.

Valero Energy Corp. (VLO) -- New Position
The transaction was as follows:
10/25/2011 Sold 4 Valero Energy Corp.(VLO) Nov2011 $22.00 Put Options @ $1.75
Note: the price of VLO stock was $21.26 today when these puts were sold.

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 four put options sold.

Two possible overall performance results(including commissions) for this Valero Energy Corp.(VLO) transaction would be as follows:
100% Cash-Secured Cost Basis: $8,800.00
= $22.00*400

Net Profit:
(a) Options Income: +$688.05
= ($1.75*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.26 and thus stock assigned at $22.00 at expiration): -$304.95
= ($21.26-$22.00)*500 - $8.95 commissions
(c) Capital Appreciation (If VLO stock above $22.00 at Nov2011 expiration): -$8.95
= ($22.00-$22.00) -$8.95 commissions

Total Net Profit(If stock price unchanged at $21.26): +$383.10
= (+$688.05 +$0.00 -$304.95)
Total Net Profit(If stock price above $22.00 at Nov2011 options expiration): +$679.10
= (+$688.05 +$0.00 -$8.95)

1. Absolute Return if Unchanged at $21.26: +4.4%
= +$383.10/$8,800.00
Annualized Return If Unchanged (ARIU): +63.6%
= (+$383.10/$8,800.00)*(365/25 days)

2. Absolute Return (If stock price above $22.00 at Nov2011 options expiration and put options thus expire worthless): +7.7%
= +$679.10/$8,800.00
Annualized Return (If stock price above $22.00 at expiration): +112.7%
= (+$679.10/$8,800.00)*(365/25 days)

Continuation Transactions -- Apple Inc., International Paper, Mylan Inc., and Peabody Energy

2011-10-24T22:25:00.003-04:00

Upon Oct2011 options expiration last Friday, seven of the thirteen total covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for four of these seven equities (Apple Inc., International Paper, Mylan Inc., and Peabody Energy) with Nov2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. Apple Inc.(AAPL) -- Continuation
The transactions history is as follows:
09/19/2011 Bought 100 shares AAPL at $396.544
09/19/2011 Sold 1 AAPL Oct2011 $410 Call Option @ $10.15
10/22/2011 Oct2011 option expired.
Note: the AAPL price was $392.87 at option expiration.
10/24/2011 Sold 1 AAPL Nov2011 $410 Call Option @ $7.20
Note: the price of AAPL was $399.10 when the option was sold.

Some possible performance results(including commissions) for these AAPL transactions are as follows:
Stock Purchase Cost: $39,663.35
= ($396.544*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,715.60
= (100*($10.15+$7.20) - 2*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $399.10): +$246.65
= ($399.10-$396.544)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $410.00 at expiration): +$1,336.65
= ($410.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock price unchanged at $399.10): +$1,962.25
= (+$1,715.60 +$0.00 +$246.65)
Total Net Profit (If stock assigned at $410.00): +$3,052.25
= (+$1,715.60 +$0.00 +$1,336.65)

1. Absolute Return (If stock price unchanged at $399.10): +4.9%
= +$1,962.25/$39,663.35
Annualized Return If Unchanged (ARIU) +29.6%
= (+$1,962.25/$39,663.35)*(365/61 days)

2. Absolute Return (If stock assigned at $410.00 strike price): +7.7%
= +$3,052.25/$39,663.35
Annualized Return If Assigned (ARIA): +46.0%
= (+$3,052.25/$39,663.35)*(365/61 days)

2. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
09/19/2011 Bought 400 shares IP at $26.978
09/19/2011 Sold 4 IP Oct2011 $28 Calls @ $1.18
10/22/2011 Oct2011 options expired.
Note: the IP price was $25.93 at option expiration.
10/24/2011 Sold 4 IP Nov2011 $27.00 Call Options @ $.73
Note: the price of IP was $26.25 when the options were sold.
11/14/2011 Ex-Div $105.00 = $.2625 * 400 shares

Two possible overall performance results(including commissions) for this International Paper Co.(IP) transaction would be as follows:
Stock Purchase Cost: $10,800.15
= ($26.978*400+$8.95 commission)

Net Profit:
(a) Options Income: +$740.10
= (400*($1.18+$.73) - 2*$11.95 commissions)
(b) Dividend Income: +$105.00 = $.2625 * 400 shares
(c) Capital Appreciation (If stock unchanged at $26.25 at expiration): -$300.15
= ($26.25-$26.978)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $27.00): -$.15
= ($27.00-$26.978)*400 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$544.95
= (+$740.10 +$105.00 -$300.15)
Total Net Profit (If stock assigned at $28.00): +$844.95
= (+$740.10 +$105.00 -$.15)

1. Absolute Return (If stock unchanged at $26.25 at expiration): +5.0%
= +$544.95/$10,800.15
Annualized Return (If stock unchanged at expiration): +30.2%
= (+$544.95/$10,800.15)*(365/61 days)

2. Absolute Return (If stock assigned at $27.00 at expiration): +7.8%
= +$844.95/$10,800.15
Annualized Return (If stock assigned at $27.00): +46.8%
= (+$844.95/$10,800.15)*(365/61 days)

3. Mylan Inc. -- Continuation
The transactions history is as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.
08/20/2011 Aug2011 MYL options exercised and stock purchased at $23.00 per share.
08/22/2011 Sold 5 MYL Sep2011 $22.00 Calls @ $.46
09/17/2011 Sep2011 MYL options expired.
09/20/2011 Sold 5 MYL Oct2011 $22.00 Calls @ $.63
Note: The price of MYL was $20.48 when these call options were sold.
10/22/2011 Oct2011 options expired.
Note: the MYL price was $18.04 at option expiration.
10/24/2011 Sold 4 IP Nov2011 $19.00 Call Options @ $.56
Note: the price of MYL was $18.08 when the options were sold.

Two possible overall performance results(including commissions) for the Mylan Inc. transactions would be as follows:
Stock Purchase Cost: $11,508.95
= ($23.00*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,304.20
= 500*($1.06+$.46+$.63+$.56) - 4*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MYL unchanged at $18.08):
-$2,468.95 = ($18.08-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MYL exercised at $19.00): -$2,008.95
= ($19.00-$23.00)*500 - $8.95 commissions

Total Net Profit(If MYL unchanged at $18.08): -$1,164.75
= (+$1,304.20 +$0.00 -$2,468.95)
Total Net Profit(If MYL exercised at $19.00): -$704.75
= (+$1,304.20 +$0.00 -$2,008.95)

1. Absolute Return if Unchanged at $18.08: -10.1%
= -$1,164.75/$11,508.95
Annualized Return If Unchanged (ARIU): -29.8%
= (-$1,164.75/$11,508.95)*(365/124 days)

2. Absolute Return if Assigned at $19.00: -6.1%
= -$704.75/$11,508.95
Annualized Return If Assigned (ARIA): -18.0%
= (-$704.75/$11,508.95)*(365/124 days)

4. Peabody Energy Corp.(BTU) -- Continuation
The transactions history is as follows:
09/19/2011 Bought 300 shares BTU at $44.208
09/19/2011 Sold 3 BTU Oct2011 $47 Calls @ $1.67
10/22/2011 Oct2011 options expired.
Note: the BTU price was $38.89 at option expiration.
10/24/2011 Sold 3 BTU Nov2011 $41.00 Call Options @ $1.85
Note: the price of BTU was $40.40 when the options were sold.

Two possible overall performance results(including commissions) for this Peabody Energy Corp.(BTU) transaction would be as follows:
Stock Purchase Cost: $13,271.35
= ($44.208*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,033.60
= (300*($1.67+$1.85) - 2*$11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $40.40 at expiration): -$1,151.35
= ($40.40-$44.208)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $41.00): -$971.35
= ($41.00-$44.208)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at $40.40 at expiration): -$117.75
= (+$1,033.60 +$0.00 -$1,151.35)
Total Net Profit (If stock assigned at $41.00): +$62.25
= (+$1,033.60 +$0.00 -$971.35)

1. Absolute Return (If stock unchanged at $40.40 at expiration): -0.9%
= -$117.75/$13,271.35
Annualized Return (If stock unchanged at expiration): -5.3%
= (-$117.75/$13,271.35)*(365/61 days)

2. Absolute Return (If stock assigned at $41.00 at expiration): +0.5%
= +$62.25/$13,271.35
Annualized Return (If stock assigned at $41.00): +2.8%
= (+$62.25/$13,271.35)*(365/61 days)

Closed -- Alcoa Inc.

2011-10-24T21:58:00.005-04:00

The Oct2011 covered calls position in Alcoa Inc.(AA) expired last Friday. Today, a decision was made to sell the 500 shares in the Covered Calls Advisor Portfolio. The detailed transactions history and associated results for this AA position are as follows:

The transactions history for the Alcoa Inc.(AA) position:
08/26/2011 Bought 500 AA @ $11.49
08/26/2011 Sold 5 AA Sep2011 $12.00 Calls @ $.42
Note: the price of AA was $11.60 when the call options were sold.
09/17/2011 Sep2011 options expired.
09/20/2011 Sold 5 AA Oct2011 $11.00 Calls @ $.82
Note: the price of AA was $11.48 when the call options were sold.
10/22/2011 Oct2011 options expired.
Note: the price of AA was $10.23 at options expiration.
10/24/2011 Sold 500 AA @ $10.49

The overall performance result (including commissions) for the Alcoa Inc.(AA) transactions was as follows:
Stock Purchase Cost: $5,753.95
= ($11.49*500+$8.95 commission)

Net Profit:
(a) Options Income: +$594.60
= (500*($.42+$.82) - 2*$12.70 commissions)
(b) Dividend Income: +$15.00 = $.03 * 500 shares
(c) Capital Appreciation (AA sold at $10.49): -$508.95
= ($10.49-$11.49)*500 - $8.95 commissions

Total Net Profit (AA sold at $10.49): +$100.65
= (+$594.60 +$15.00 -$508.95)

Absolute Return (AA sold at $10.49): +1.7%
= +$100.65/$5,753.95
Annualized Return: +10.8%
= (+$100.65/$5,753.95)*(365/59 days)

October 2011 Expiration Results

2011-10-24T07:16:00.006-04:00

The Covered Calls Advisor Portfolio (CCAP) contained a total of thirteen covered calls positions with October 2011 expirations, with the following results:

- Seven covered calls positions in the CCAP (Alcoa Inc., Apple Inc., International Paper, iShares MSCI Emerging Markets ETF, iShares MSCI China ETF, Mylan Inc., and Peabody Energy Corp.) expired out-of-the-money. Decisions will be made to either sell these equities, or to keep them and sell calls to establish November 2011 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.

- Six covered calls positions (General Motors Co., iShares MSCI South Korea ETF, Microsoft Corp., Morgan Stanley, ProShares UltraShort Barclays 20+ Year Treasury ETF, and Valero Energy Co.) were in-the-money and the stocks were assigned (i.e. stock called away) upon option expiration last Friday. The detailed history for these closed positions is as follows:

1. General Motors Co.(GM) -- Closed
The transactions history is as follows:
07/20/2011 Bought 300 GM @ $29.32
07/20/2011 Sold 3 GM Aug2011 $30.00 Calls @ $.79
Note: the price of GM was $29.45 when the call options were sold.
08/20/2011 Aug2011 GM options expired.
08/22/2011 Sold 3 GM Sep2011 $24.00 Calls @ $.65
09/17/2011 Sep2011 GM options expired.
09/20/2011 Sold 3 GM Oct2011 $24.00 Calls @ $.57
Note: The price of GM was $22.80 when the options were sold.
10/22/2011 Sold 300 GM shares at $24.00 at Oct2011 expiration.
Note: The price of GM was $24.35 when the call options were assigned.

The performance results(including commissions) for these GM transactions are as follows:
Stock Purchase Cost: $8,804.95
= ($29.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$537.90
= (300*($.70+$.65+$.57) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $24.00 at expiration): -$1,604.95
= ($24.00-$29.32)*300 - $8.95 commissions

Total Net Profit (Stock assigned at $24.00): -$1,067.05
= (+$537.90 +$0.00 -$1,604.95)

Absolute Return (Stock assigned at $24.00 strike price): -12.1%
= -$1,067.05/$8,804.95
Annualized Return: -71.3%
= (-$1,067.05/$8,804.95)*(365/62 days)

2. iShares MSCI South Korea ETF (EWY) -- Closed
The transactions history is as follows:

07/18/2011 Bought 500 EWY @ $64.76
07/18/2011 Sold 5 EWY Aug2011 $66.00 Calls @ $1.45
Note: The price of EWY was $64.80 when the options were sold.
08/20/2011 Aug2011 options expired.
08/29/2011 Sold 5 EWY Sep2011 $56.00 Calls @ $1.36
09/17/2011 Sep2011 EWY options expired.
09/20/2011 Sold 5 EWY Oct2011 $50.00 Calls @ $3.74
10/22/2011 Sold 500 EWY shares at $50.00 at Oct2011 expiration.
Note: The price of EWT was $52.98 when the call options were assigned.

The performance results(including commissions) for these EWY transactions are as follows:
Stock Purchase Cost: $32,388.95
= ($64.76*500+$8.95 commission)

Net Profit:
(a) Options Income: +$3,236.90
= (500*($1.45+$1.36+$3.74) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $50.00 at expiration): -$7,388.95
= ($50.00-$64.76)*500 - $8.95 commissions

Total Net Profit (Stock assigned at $50.00): -$4,152.05
= (+$3,236.90 +$0.00 -$7,388.95)

Absolute Return (Stock assigned at $50.00 strike price): -12.8%
= -$4,152.05/$32,388.95
Annualized Return: -48.7%
= (-$4,152.05/$32,388.95)*(365/96 days)

3. Microsoft Corp.(MSFT) -- Closed
The transactions history is as follows:
01/24/2011 Bought 700 MSFT @ $28.15
02/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
01/24/2011 Sell-to-Open(STO) 7 MSFT Feb2011 $29.00 CallS @ $.40
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 7 MSFT Apr2011 $26.00 Calls @ $.31
Note: the price of MSFT was $25.47 today when the options were sold.
04/16/2011 Apr2011 MSFT options expired.
04/26/2011 Sold 7 MSFT May2011 $26.00 Calls @ $.66
Note: The price of MSFT was $26.06 when these call options were sold.
05/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
05/31/2011 Sold 7 MSFT Jul2011 $26.00 Calls @ $.29
Note: The price of MSFT was $25.05 when these call options were sold.
07/14/2011 Buy-to-Close (BTC) 7 MSFT Jul2011 $26.00 Call Options @ $.50
07/14/2011 Sell-to-Open (STO) 7 MSFT Aug2011 $27.00 Call Options @ $.56
Note: The price of MSFT was $26.52 when these call options were sold.
08/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
08/20/2011 Aug2011 options expired.
08/29/2011 Sold 7 MSFT Sep2011 $26.00 Calls @ $.58
09/17/2011 Sep2011 MSFT options expired.
09/20/2011 Sold 7 MSFT Oct2011 $26.00 Calls @ $.41
10/22/2011 10/22/2011 Sold 700 MSFT shares at $26.00 at Oct2011 expiration.
Note: The price of MSFT was $27.16 when the call options were assigned.

The performance results(including commissions) for these MSFT transactions are as follows:
Stock Purchase Cost: $19,713.95
= ($28.15*700+$8.95 commission)

Net Profit:
(a) Options Income: +$2,483.40
= (700*($.40+$.31+$.66+$.29+$.50+$56+$.58+$.41) - 8*$14.20 commissions)
(b) Dividend Income: +$336.00 ($.16*700 shares * 3 dividend payouts)
(c) Capital Appreciation (Stock assigned at $26.00 at expiration): -$1,513.95
= ($26.00-$28.15)*700 - $8.95 commissions

Total Net Profit (Stock assigned at $26.00): +$1,305.45
= (+$2,483.40 +$336.00 -$1,513.95)

Absolute Return (Stock assigned at $26.00 strike price): +6.6%
= +$1,305.45/$19,713.95
Annualized Return: +8.9%
= (-$4,152.05/$32,388.95)*(365/271 days)

4. Morgan Stanley (MS) -- Closed
The transactions history is as follows:
06/03/2011 Bought 300 MS @ $22.988
06/03/2011 Sold 3 MS Jul2011 $25.00 Calls @ $.26
Note: the price of MS was $23.14 when the call options were sold.
07/16/2011 Jul2011 MS options expired.
07/18/2011 Sold 3 MS Sep2011 $22.00 Calls @$.66
Note: The price of MS was $20.82 when these call options were sold.
07/27/2011 Ex-Dividend of $.05 per share
09/17/2011 Sep2011 MS options expired.
09/20/2011 Sold 3 MS Oct2011 $17.00 Calls @ $.42
Note: The price of MS was $15.41 when these call options were sold.
10/22/2011 Sold 300 MS shares at $17.00 at Oct2011 expiration.
Note: The price of MS was $17.02 when the call options were assigned.

Two possible overall performance results(including commissions) for the Morgan Stanley transactions would be as follows:
Stock Purchase Cost: $6,905.35
= ($22.988*300+$8.95 commission)

Net Profit:
(a) Options Income: +$276.40
= 300*($.26+$.66+$.42) - 3*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05 * 300 shares
(c) Capital Appreciation (If MS exercised at $17.00): -$1,805.35
= ($17.00-$22.988)*300 - $8.95 commissions

Total Net Profit(MS assigned at $17.00): -$1,513.95
= (+$276.40 +$15.00 -$1,805.35)

Absolute Return (Stock Assigned at $17.00): -21.9%
= -$1,513.95/$6,905.35
Annualized Return: -56.8%
= (-$1,513.95/$6,905.35)*(365/141 days)

5. ProShares UltraShort Barclays 20+ Year Treasury ETF (TBT) -- Closed
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.
07/16/2011 Jul2011 TBT options expired.
07/21/2011 Sold 2 TBT Aug2011 $34.00 Calls @$.77
Note: The price of TBT was $33.28 when these call options were sold.
08/20/2011 Aug2011 options expired.
08/29/2011 Sold 2 TBT Sep2011 $25.00 Calls @ $1.58
09/17/2011 Sep2011 TBT options expired.
09/20/2011 Sold 2 TBT Oct2011 $21.00 Calls @ $1.67
10/22/2011 10/22/2011 Sold 200 TBT shares at $21.00 at Oct2011 expiration.
Note: The price of TBT was $21.83 when the call options were assigned.

The performance results(including commissions) for these TBT transactions are as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$933.10
= (200*($.36+$.39+$.77+$1.58+$1.67) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $21.00 at expiration): -$2,958.95
= ($21.00-$35.75)*200 - $8.95 commissions

Total Net Profit (Stock assigned at $21.00): -$2,025.85
= (+$933.10 +$0.00 -$2,958.95)

Absolute Return (Stock assigned at $21.00 strike price): -59.7%
= -$2,025.85/$7,158.95
Annualized Return: +8.9%
= (-$2,025.85/$7,158.95)*(365/173 days)

6. Valero Energy Corp.(VLO) -- Closed
The transactions history is as follows:
09/20/2011 Bought 300 VLO @ $21.30
09/20/2011 Sold 3 VLO Oct2011 $23.00 Calls @ $.62
10/22/2011 Sold 300 VLO shares at $23.00 at Oct2011 expiration.
Note: The price of VLO was $23.68 when the call options were assigned.

The performance results(including commissions) for these VLO transactions are as follows:
Stock Purchase Cost: $6,398.95
= ($21.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$174.80
= ($.62*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (VLO assigned $23.00 at Oct2011 expiration): +$501.05
+($23.00-$21.30)*300 - $8.95 commissions

Total Net Profit(VLO stock assigned at $23.00 at Oct2011 options expiration): +$675.85
= (+$174.80 +$0.00 +$501.05)

Absolute Return (Stock assigned at $23.00 at Oct2011 options expiration):
+10.6% = +$675.85/$6,398.95
Annualized Return: +120.5%
= (+$675.85/$6,398.95)*(365/32 days)

Overall Market Meter Rating Remains "Slightly Bullish"

2011-10-20T09:26:00.003-04:00

Each month during options expiration week, the Covered Calls Advisor re-calculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. 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 3.63 (see blue line in chart above) is slightly greater than the 3.50 of last month. The 3.63 is a Slightly Bullish rating(range from 3.5 to 4.5). Seven of the eight factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month. The only factor that changed was the Interest Rates factor, which changed from Neutral to Slightly Bullish.

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 October 2011 options expiration this week, newly established positions for November 2011 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

Returns -- Through September 2011

2011-10-03T07:19:00.009-04:00

1. September 2011 Year-to-Date Results:

As shown in the chart below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the benchmark Russell 3000 index by 3.42 percentage points (-14.39% minus -10.97%) over the first nine months of calendar year 2011.

CCAP Absolute Return (Jan 1st through September 30th, 2011) = -14.39%
($246,089.10-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through September 30th, 2011) = -10.97% = ($66.73-$74.95)/$74.95

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark were as follows:

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.

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. As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating remains "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

Establish Valero Energy Corp. Covered Calls

2011-09-20T23:00:00.009-04:00

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Valero Energy Corp.(VLO) covered calls as follows:

Established Valero Energy Corp.(VLO) Covered Calls for Oct2011:
09/20/2011 Bought 300 VLO @ $21.30
09/20/2011 Sold 3 VLO Oct2011 $23.00 Calls @ $.62

With total capacity of approximately 3.0 million barrels per day, Valero Energy Corp. is the largest petroleum refiner and marketer in the U.S. The company has the industry's most complex and sophisticated refining system. Most of its 16 refineries throughout the U.S., Canada and Aruba are able to process heavy, low-quality crude oil. The company has a growing network of retail outlets in the Great Plains, Southwest and Northeast.

VLO rates above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 18.24 is above this advisor's required threshold of 16.0), so it was decided to establish a covered calls position in VLO with an Oct2011 expiration.

Note: Click on chart above for larger image.

Two possible overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions would be as follows:

Stock Purchase Cost: $6,398.95
= ($21.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$174.80
= ($.62*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.30): -$8.95
= ($21.30-$21.30)*300 - $8.95 commissions
(c) Capital Appreciation (If VLO above $23.00 at Oct2011 expiration): +$501.05
+($23.00-$21.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $21.30): +$165.85
= (+$174.80 +$0.00 -$8.95)
Total Net Profit(If stock price above $23.00 at Oct2011 options expiration): +$675.85= (+$174.80 +$0.00 +$501.05)

1. Absolute Return if Unchanged at $21.30: +2.6%
= +$165.85/$6,398.95
Annualized Return If Unchanged (ARIU): +43.6%
= (+$165.85/$6,398.95)*(365/32 days)

2. Absolute Return (If stock price above $23.00 at Oct2011 options expiration):
+10.6% = +$675.85/$6,398.95
Annualized Return (If stock price above $23.00 at expiration): +120.5%
= (+$675.85/$6,398.95)*(365/32 days)

The downside breakeven price at expiration is at $20.68 ($21.30 - $.62).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Oct2011 options expiration) for this Valero Energy Corp.(VLO) covered calls position is 60.9%. This compares with a probability of profit of 52.4% for a buy-and-hold of Valero over the same time period.

Continuation Transactions -- General Motors Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Morgan Stanley, and Mylan Inc.

2011-09-20T22:32:00.008-04:00

Upon Sep2011 options expiration last Friday, ten of the fourteen total covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for five equities (General Motors Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Morgan Stanley, and Mylan Inc.) with Oct2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. General Motors Co.(GM) -- Continuation
The transactions history is as follows:
07/20/2011 Bought 300 GM @ $29.32
07/20/2011 Sold 3 GM Aug2011 $30.00 Calls @ $.79
Note: the price of GM was $29.45 when the call options were sold.
08/20/2011 Aug2011 GM options expired.
08/22/2011 Sold 3 GM Sep2011 $24.00 Calls @ $.65
09/17/2011 Sep2011 GM options expired.
09/20/2011 Sold 3 GM Oct2011 $24.00 Calls @ $.57
Note: The price of GM was $22.80 when the options were sold.

Some possible performance results(including commissions) for these GM transactions are as follows:
Stock Purchase Cost: $8,804.95
= ($29.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$537.90
= (300*($.70+$.65+$.57) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $22.80): -$1,964.95
= ($22.80-$29.32)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $24.00 at expiration): -$1,604.95
= ($24.00-$29.32)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at $22.80): -$1,427.05
= (+$537.90 +$0.00 -$1,964.95)
Total Net Profit (If stock assigned at $24.00): -$1,067.05
= (+$537.90 +$0.00 -$1,604.95)

1. Absolute Return (If stock price unchanged at $22.80): -16.2%
= -$1,427.05/$8,804.95
Annualized Return If Assigned (ARIA) -95.4%
= (-$1,427.05/$8,804.95)*(365/62 days)

2. Absolute Return (If stock assigned at $24.00 strike price): -12.1%
= -$1,067.05/$8,804.95
Annualized Return If Assigned (ARIA): -71.3%
= (-$1,067.05/$8,804.95)*(365/62 days)

2. iShares MSCI China ETF (FXI) -- Continuation
The transactions history is as follows:
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

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$2,626.50
= (1,000*($.49+$.37+$.71+$.65+$.47) - 5*$12.70 commissions)
(b) Distribution Income: $685.55 = $.68555 * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $35.29 at expiration): -$9,518.95
= ($35.29-$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 price unchanged at $35.29 at expiration): -$6,206.90
= (+$2,626.50 +$685.55 -$9,518.95)
Total Net Profit (If FXI assigned at $38.00): -$2,894.85
= (+$2,626.50 +$685.55 -$6,206.90)

1. Absolute Return (If FXI unchanged at $35.29 at expiration): -13.9%
= -$6,206.90/$44,808.95
Annualized Return (If FXI unchanged at expiration): -27.0%
= (-$6,206.90/$44,808.95)*(365/187 days)

2. Absolute Return (If FXI assigned at $38.00 at expiration): -6.5%
= -$2,894.85/$44,808.95
Annualized Return If Assigned (ARIA): -12.6%
= (-$2,894.85/$44,808.95)*(365/187 days)

3. iShares MSCI Emerging Markets ETF (FXI) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.
08/20/2011 Aug2011 EEM options expired.
08/22/2011 Sold 5 EEM Sep2011 $42.00 Calls @ $.71
09/17/2011 Sep2011 EEM options expired.
09/20/2011 Sold 5 EEM Oct2011 $42.00 Calls @ $.63
Note: The price of EEM was $39.68 when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,988.80
= [500*($.83 +$.35+$.62+$.99+$.71+$.63) - 6*$12.70 commissions]
(b) Distribution Income: $230.46 = $.46092 * 500 shares
(c) Capital Appreciation (If EEM unchanged at $39.68 at expiration): -$4,073.95
= ($39.68-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $42.00): -$2,913.95
= ($42.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $39.68 at expiration): -$1,854.69
= (+$1,988.80 +$230.46 -$4,073.95)
Total Net Profit (If EEM assigned at $42.00): -$694.69
= (+$1,988.80 +$230.46 -$2,913.95)

1. Absolute Return (If stock unchanged at $39.68 at expiration): -7.8%
= -$1,854.69/$23,913.95
Annualized Return (If stock unchanged at expiration): -15.1%
= (-$1,854.69/$23,913.95)*(365/187 days)

2. Absolute Return (If stock assigned at $42.00 at expiration): -2.9%
= -$694.69/$23,913.95
Annualized Return If Assigned (ARIA): -5.7%
= (-$694.69/$23,913.95)*(365/187 days)

4. Morgan Stanley (MS) -- Continuation
The transactions history is as follows:
06/03/2011 Bought 300 MS @ $22.988
06/03/2011 Sold 3 MS Jul2011 $25.00 Calls @ $.26
Note: the price of MS was $23.14 when the call options were sold.
07/16/2011 Jul2011 MS options expired.
07/18/2011 Sold 3 MS Sep2011 $22.00 Calls @$.66
Note: The price of MS was $20.82 when these call options were sold.
07/27/2011 Ex-Dividend of $.05 per share
09/17/2011 Sep2011 MS options expired.
09/20/2011 Sold 3 MS Oct2011 $17.00 Calls @ $.42
Note: The price of MS was $15.41 when these call options were sold.

Two possible overall performance results(including commissions) for the Morgan Stanley transactions would be as follows:
Stock Purchase Cost: $6,905.35
= ($22.988*300+$8.95 commission)

Net Profit:
(a) Options Income: +$276.40
= 300*($.26+$.66+$.42) - 3*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05 * 300 shares
(c) Capital Appreciation (If MS unchanged at $15.41):
-$2,282.35 = ($15.41-$22.988)*300 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $17.00): -$1,805.35
= ($17.00-$22.988)*300 - $8.95 commissions

Total Net Profit(If MS unchanged at $15.41): -$1,990.95
= (+$276.40 +$15.00 -$2,282.35)
Total Net Profit(If MS exercised at $17.00): -$1,513.95
= (+$276.40 +$15.00 -$1,805.35)

1. Absolute Return if Unchanged at $15.41: -28.8%
= -$1,990.95/$6,905.35
Annualized Return If Unchanged (ARIU) -74.6%
= (-$1,990.95/$6,905.35)*(365/141 days)

2. Absolute Return if Assigned at $17.00: -21.9%
= -$1,513.95/$6,905.35
Annualized Return If Assigned (ARIA): -56.8%
= (-$1,513.95/$6,905.35)*(365/141 days)

5. Mylan Inc. -- Continuation
The transactions history is as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.
08/20/2011 Aug2011 MYL options exercised and stock purchased at $23.00 per share.
08/22/2011 Sold 5 MYL Sep2011 $22.00 Calls @ $.46
09/17/2011 Sep2011 MYL options expired.
09/20/2011 Sold 5 MYL Oct2011 $22.00 Calls @ $.63
Note: The price of MYL was $20.48 when these call options were sold.

Two possible overall performance results(including commissions) for the Mylan Inc. transactions would be as follows:
Stock Purchase Cost: $11,508.95
= ($23.00*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,036.90
= 500*($1.06+$.46+$.63) - 3*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MYL unchanged at $20.48):
-$1,268.95 = ($20.48-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $17.00): -$508.95
= ($22.00-$23.00)*500 - $8.95 commissions

Total Net Profit(If MYL unchanged at $20.48): -$232.05
= (+$1,036.90 +$0.00 -$1,268.95)
Total Net Profit(If MYL exercised at $22.00): +$527.95
= (+$1,036.90 +$0.00 -$508.95)

1. Absolute Return if Unchanged at $20.48: -2.0%
= -$232.05/$11,508.95
Annualized Return If Unchanged (ARIU) -7.7%
= (-$232.05/$11,508.95)*(365/96 days)

2. Absolute Return if Assigned at $22.00: +4.6%
= +$527.95/$11,508.95
Annualized Return If Assigned (ARIA): +17.4%
= ($527.95/$11,508.95)*(365/96 days)

Closed -- iShares MSCI Germany ETF

2011-09-20T22:07:00.003-04:00

The Sep2011 covered calls position in iShares MSCI Germany ETF (symbol EWG) expired last Friday. Today, a decision was made to sell the 500 shares in the Covered Calls Advisor Portfolio. This investment has suffered greatly both because of surprisingly anemic German GDP growth during the past quarter as well as the European debt crisis. With the uncertainty surrounding the ultimate outcome of the debt crisis, European stock investments are likely to continue to underperform until this situation is resolved more completely. The detailed transactions history for this EWG position and the corresponding results are as follows:

The transactions history for the iShares MSCI Germany ETF (EWG) position:
07/18/2011 Bought 500 EWG @ $25.03
07/18/2011 Sold 5 EWG Sep2011 $26.00 Calls @ $.70
Note: The price of EWG was $25.06 when the options were sold.
09/17/2011 Sep2011 EWG options expired.
09/20/2011 Sold 500 EWG @ $19.16

The performance results(including commissions) for these EWG transactions was as follows:
Stock Purchase Cost: $12,523.95
= ($25.03*500+$8.95 commission)

Net Profit:
(a) Options Income: +$337.30
= (500*$.70 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$2,943.95
= ($19.16-$25.03)*500 - $8.95 commissions

Total Net Profit: -$2,606.65
= (+$337.30 +$0.00 -$2,943.95)

Absolute Return: -20.8%
= -$2,606.65/$12,523.95
Annualized Return If Assigned (ARIA) -118.7%
= (-$2,606.65/$12,523.95)*(365/64 days)

Establish Apple Inc., International Paper, and Peabody Energy Covered Calls

2011-09-19T20:21:00.005-04:00

Today, new covered calls positions were established with Apple Inc.(AAPL), International Paper (IP), and Peabody Energy (BTU). Previous covered calls positions with Sep2011 expirations in Apple Inc. and International Paper Co. were in-the-money at expiration and the options were assigned and the stock called away. Upon re-considering the current prices of both Apple and International Paper over the weekend, it was decided to re-purchase shares in both companies and to establish Oct2011 covered calls positions. A third covered calls position was also initiated today in Peabody Energy Corp.(BTU). The details for each is presented below:

1. Apple Inc.(AAPL)
09/19/2011 Bought 100 shares AAPL at $396.544
09/19/2011 Sold 1 AAPL Oct2011 $410 Call Option @ $10.15

Two possible overall performance results(including commissions) for this Apple Inc.(AAPL) transaction would be as follows:
Stock Purchase Cost: $39,663.35
= ($396.544*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,005.30
= (100*$10.15 - $9.70 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $396.544 at expiration): -$8.95
= ($396.544-$396.544)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $410.00): +$1,336.65
= ($410.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$996.35
= (+$1,005.30 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $410.00): +$2,341.95
= (+$1,005.30 +$0.00 +$1,336.65)

1. Absolute Return (If stock unchanged at $396.544 at expiration): +2.5%
= +$996.35/$39,663.35
Annualized Return (If stock unchanged at expiration): +26.2%
= (+$996.35/$39,663.35)*(365/35 days)

2. Absolute Return (If stock assigned at $410.00 at expiration): +5.9%
= +$2,341.95/$39,663.35
Annualized Return (If stock assigned at $410.00): +61.6%
= (+$2,341.95/$39,663.35)*(365/35 days)

2. International Paper Co.(IP)

09/19/2011 Bought 400 shares IP at $26.978
09/19/2011 Sold 4 IP Oct2011 $28 Calls @ $1.18

Two possible overall performance results(including commissions) for this International Paper Co.(IP) transaction would be as follows:
Stock Purchase Cost: $10,800.15
= ($26.978*400+$8.95 commission)

Net Profit:
(a) Options Income: +$463.05
= (400*$1.18 - $11.95 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $26.978 at expiration): -$8.95
= ($26.978-$26.978)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $28.00): +$399.85
= ($28.00-$26.978)*400 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$454.10
= (+$463.05 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $28.00): +$862.90
= (+$463.05 +$0.00 +$399.85)

1. Absolute Return (If stock unchanged at $26.978 at expiration): +4.2%
= +$454.10/$10,800.15
Annualized Return (If stock unchanged at expiration): +43.8%
= (+$454.10/$10,800.15)*(365/35 days)

2. Absolute Return (If stock assigned at $28.00 at expiration): +8.0%
= +$862.90/$10,800.15
Annualized Return (If stock assigned at $28.00): +83.3%
= (+$862.90/$10,800.15)*(365/35 days)

3. Peabody Energy Corp.(BTU)

09/19/2011 Bought 300 shares BTU at $44.208
09/19/2011 Sold 3 BTU Oct2011 $47 Calls @ $1.67

Two possible overall performance results(including commissions) for this Peabody Energy Corp.(BTU) transaction would be as follows:
Stock Purchase Cost: $13,271.35
= ($44.208*300+$8.95 commission)

Net Profit:
(a) Options Income: +$489.80
= (300*$1.67 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $44.208 at expiration): -$8.95
= ($44.208-$44.208)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$828.65
= ($47.00-$44.208)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$480.85
= (+$489.80 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $47.00): +$1,318.45
= (+$489.80 +$0.00 +$828.65)

1. Absolute Return (If stock unchanged at $44.208 at expiration): +3.6%
= +$480.85/$13,271.35
Annualized Return (If stock unchanged at expiration): +37.8%
= (+$480.85/$13,271.35)*(365/35 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +9.9%
= +$1,318.45/$13,271.35
Annualized Return (If stock assigned at $47.00): +103.6%
= (+$1,318.45/$13,271.35)*(365/35 days)

September 2011 Expiration Results

2011-09-19T17:20:00.007-04:00

The Covered Calls Advisor Portfolio (CCAP) contained a total of fourteen covered calls positions with September 2011 expirations, with the following results:

- Ten covered calls positions in the CCAP (Alcoa Inc., General Motors Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, iShares MSCI Germany ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Morgan Stanley, ProShares UltraShort 20+ Year Treasury ETF, and Valero Energy Corp.) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish October 2011 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.

- Four covered calls positions (Apple Inc., Best Buy Corp., International Paper Co., and Valero Energy Co.) were in-the-money and the stocks were assigned (i.e. stock called away) upon option expiration last Friday. The detailed history for these closed positions is as follows:

1. Apple Inc. (AAPL) -- Closed
The transactions history is as follows:
08/22/2011 Bought 100 AAPL @ $359.986
08/22/2011 Sold 1 AAPL Sep2011 $375.00 Call @ $8.45
Note: The call option was sold today when the AAPL stock was trading at $361.52.
09/17/2011 AAPL options closed in-the-money and stock assigned at $375.00 strike price.
Note: The closing price of AAPL at expiration was $400.50.

The result(including commissions) for the Apple Inc. (AAPL) transactions was as follows:

Stock Purchase Cost: $36,007.55
= ($359.986*100+$8.95 commission)

Net Profit:
(a) Options Income: +$835.30
= (100*$8.45 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $375.00): +$1,492.45
= ($375.00-$359.986)*100 - $8.95 commissions

Total Net Profit(If stock assigned at $375.00): +$2,327.75
= (+$835.30 +$0.00 +$1,492.45)

Absolute Return (Stock Assigned at $375.00): +6.5%
= +$2,327.75/$36,007.55
Annualized Return: +90.8%
= (+$2,327.75/$36,007.55)*(365/26 days)

2. Best Buy Corp. (BBY) -- Closed
The transactions history is as follows:
01/24/2011 Bought 300 BBY @ $35.13
01/24/2011 Sell-to-Open(STO) 3 BBY Feb2011 $36.00 Calls @ $.57
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 3 BBY Apr2011 $34.00 Calls @ $.49
Note: the price of BBY was $31.92 today when the options were sold.
04/16/2011 Apr2011 BBY options expired.
04/26/2011 Sold 3 BBY May2011 $31.00 Calls @ $.60
Note: The price of BBY was $30.59 when these call options were sold.
05/20/2011 Bought-to-Close(BTC) 3 BBY May3011 $31.00 Calls @ $.36
Note: The price of BBY was $31.31 when the options were bought back.
05/20/2011 Sell-to-Open(STO) 3 BBY Jun2011 $32.00 Calls @ $.94
Note: The price of BBY was $31.43 when these options were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of BBY was $31.01 upon options expiration.
06/28/2011 Sold 3 BBY Aug2011 $33.00 Calls @ $.83
Note: price of BBY stock was $31.90 when these options were sold.
08/20/2011 Aug2011 BBY options expired.
08/24/2011 Sold 3 BBY Sep2011 $25.00 Calls @$1.32
Note: The price of BBY was $24.73 when these call options were sold.
09/17/2011 BBY options closed in-the-money and stock assigned at $25.00 strike price.
Note: The closing price of BBY at expiration was $25.43.

The overall performance result(including commissions) for the Best Buy Corp.(BBY) transactions was as follows:
Stock Purchase Cost: $10,547.95
= ($35.13*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,238.60
= (300*($.57+$.49+$.60-$.36+$.94+$.83+$1.32) - 7*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $25.00): -$3,047.95
= ($25.00-$35.13)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $25.00): -$1,809.35
= (+$1,238.60 +$0.00 -$3,047.95)

Absolute Return (Stock Assigned at $25.00): -17.2%
= -$1,809.35/$10,547.95
Annualized Return: -26.5%
= (-$1,809.35/$10,547.95)*(365/236 days)

3. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
05/17/2011 Bought 500 IP @ $31.26
05/17/2011 Sold 5 IP Jun2011 $32.00 Calls @ $.82
06/18/2011 Jun2011 Options Expired
Note: the price of IP was $26.57 upon options expiration.
06/21/2011 Sold 5 IP Jul2011 $30.00 Calls @ $.38
Note: price of IP stock was $28.56 when these options were sold.
07/16/2011 Jul2011 IP options expired.
07/18/2011 Sold 5 IP Aug2011 $30.00 Calls @$.90
Note: The price of IP was $29.79 when these call options were sold.
08/11/2011 Ex-Dividend of $.2625 per share
08/20/2011 Aug2011 IP options expired.
08/24/2011 Sold 5 IP Sep2011 $26.00 Calls @$.78
Note: The price of IP was $25.16 when these call options were sold.
09/17/2011 IP options closed in-the-money and stock assigned at $26.00 strike price.
Note: The closing price of IP at expiration was $27.98.

The overall performance results(including commissions) for the International Paper Co.(IP) transactions was as follows:
Stock Purchase Cost: $15,638.95
= ($31.26*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,389.20
= (500*($.82+$.38+$.90+$.78) - 4*$12.70 commissions)
(b) Dividend Income: $131.25 = $.2625 * 500 shares
(c) Capital Appreciation (If stock assigned at $26.00): -$2,638.95
= ($26.00-$31.26)*500 - $8.95 commissions

Total Net Profit (Stock assigned at $26.00): -$1,118.50
= (+$1,389.20 +$131.25 -$2,638.95)

Absolute Return (Stock assigned at $26.00 at expiration): -7.2%
= -$1,118.50/$15,638.95
Annualized Return: -21.2%
= (-$1,118.50/$15,638.95)*(365/123 days)

4. Valero Energy Corp. (VLO) -- Closed
The transactions history is as follows:
07/20/2011 Bought 300 VLO @ $25.72
07/20/2011 Sold 3 VLO Aug2011 $26.00 Calls @ $.97
Note: the price of VLO was $25.81 when the call options were sold.
08/15/2011 Ex-dividend payment of $.05 per share.
08/24/2011 Sold 3 VLO Sep2011 $22.00 Calls @ $.56
09/17/2011 VLO options closed in-the-money and stock assigned at $22.00 strike price.
Note: The closing price of VLO at expiration was $22.19.

The overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions was as follows:

Stock Purchase Cost: $7,724.95
= ($25.72*300+$8.95 commission)

Net Profit:
(a) Options Income: +$436.60
= ($.97+$.56)*300 shares) - 2*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05*300 shares (Ex-dividend date 8/15/2011)
(c) Capital Appreciation (VLO above $22.00 at Sep2011 expiration): -$1,124.95
= +($22.00-$25.72)*300 - $8.95 commissions

Total Net Profit(If stock price above $22.00 at Sep2011 options expiration): -$673.35
= (+$436.60 +$15.00 -$1,124.95)

Absolute Return (Stock price above $22.00 at Sep2011 options expiration): -8.7%
= -$673.35/$7,724.95
Annualized Return (If stock price above $26.00 at expiration): -53.9%
= (-$673.35/$7,724.95)*(365/59 days)

Overall Market Meter Rating Remains "Slightly Bullish"

2011-09-13T09:01:00.003-04:00

Each month during options expiration week, the Covered Calls Advisor re-calculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. 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 3.50 (see blue line in chart above) is identical to the 3.50 of last month. The 3.50 is exactly on the inflection point between Neutral (range of 2.5 to 3.5) and Slightly Bullish (range from 3.5 to 4.5). Since the most recent rating has been Slightly Bullish, this rating will be retained unless the Overall Market Meter average falls below 3.50, in which case the overall sentiment would change to Neutral. All eight of the factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month.

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 September 2011 options expiration this week, newly established positions for October 2011 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

Continuation Transaction -- ProShares UltraShort 20+ Year Treasury ETF

2011-09-01T10:08:00.002-04:00

Today, a decision was made to retain the shares held in ProShares UltraShort 20+ Year Treasury ETF (TBT) and to establish a Sep2011 covered calls position. The detailed transactions as well as some possible results for this investment are as follows:

1. ProShares UltraShort 20+ Year Treasury ETF (TBT) -- Continuation
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.
07/16/2011 Jul2011 TBT options expired.
07/21/2011 Sold 2 TBT Aug2011 $34.00 Calls @$.77
Note: The price of TBT was $33.28 when these call options were sold.
08/20/2011 Aug2011 Options Expired
09/01/2011 Sold 2 TBT Sep2011 $26.00 Calls @ $.68
Note: The price of TBT was $25.45 when these call options were sold.

Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$398.22
= 200*($.36+$.39+$.77+$.68) - 4*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $25.45):
-$2,068.95 = ($25.45-$35.75)*200 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $26.00): -$1,958.95
= ($26.00-$35.75)*200 - $8.95 commissions

Total Net Profit(If TBT unchanged at $25.45): -$1,670.73
= (+$398.22 +$0.00 -$2,068.95)
Total Net Profit(If TBT exercised at $26.00): -$1,560.73
= (+$398.22 +$0.00 -$1,958.95)

Absolute Return if Unchanged at $25.45: -23.3%
= -$1,670.73/$7,158.95
Annualized Return If Unchanged (ARIU) -61.7%
= (-$1,670.73/$7,158.95)*(365/138 days)

Absolute Return if Assigned at $26.00: -21.8%
= -$1,560.73/$7,158.95
Annualized Return If Assigned (ARIA) -57.7%
= (-$1,560.73/$7,158.95)*(365/138 days)

Returns -- Through August 2011

2011-08-31T21:04:00.003-04:00

1. August 2011 Year-to-Date Results:

As shown in the chart below, the Covered Calls Advisor Portfolio (CCAP) has slightly underperformed the benchmark Russell 3000 index by 0.28 percentage points (-3.60% minus -3.32%) over the first eight months of calendar year 2011.

CCAP Absolute Return (Jan 1st through August 31st, 2011) = -3.60%
($277,105.13-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through August 31st, 2011) = -3.32% = ($72.46-$74.95)/$74.95

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark were as follows:

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.

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. As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating remains "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

Continuation Transactions -- iShares MSCI Emerging Markets ETF and iShares MSCI Taiwan ETF

2011-08-31T10:22:00.003-04:00

Today, a decision was made to re-establish covered calls positions for two covered calls positions (iShares MSCI Emerging Markets ETF and iShares MSCI Taiwan ETF) that expired upon Aug2011 expirations. The new positions are being established with Sep2011 expirations and the detailed transactions history for these positions as well as possible results for these investments are as follows:

1. iShares MSCI Emerging Markets ETF(EEM) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.
08/20/2011 Aug2011 Options Expired.
08/31/2011 Sold 5 EEM Sep2011 $43.00 Calls @$1.13
Note: The price of EEM was $42.89 when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,896.50
= [500*($.83 +$.35+$.62+$.99+$1.13) - 5*$12.70 commissions]
(b) Distribution Income: $230.46 = $.46092 * 500 shares
(c) Capital Appreciation (If EEM unchanged at $42.89 at expiration): -$2,468.95
= ($42.89-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): -$2,413.95
= ($43.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $42.89 at expiration): -$341.99
= (+$1,896.50 +$230.46 -$2,468.95)
Total Net Profit (If EEM assigned at $43.00): -$286.99
= (+$1,896.50 +$230.46 -$2,413.95)

1. Absolute Return (If stock unchanged at $42.89 at expiration): -1.4%
= -$341.99/$23,913.95
Annualized Return (If stock unchanged at expiration): -3.4%
= (-$341.99/$23,913.95)*(365/152 days)

2. Absolute Return (If stock assigned at $43.00 at expiration): -1.2%
= -$286.99/$23,913.95
Annualized Return (If stock assigned at $49.00): -2.4%
= (-$286.99/$23,913.95)*(365/152 days)

2. iShares MSCI Taiwan ETF (EWT) -- Continuation
The transactions history is as follows:
07/18/2011 Bought 1,000 EWT @ $14.65
07/19/2011 Sold 10 EWT Aug2011 $15.00 Calls @ $.31
Note: The price of EWT was $14.85 today when the options were sold.
08/20/2011 Aug2011 Options Expired.
08/31/2011 Sold 10 EWT Sep2011 $14.00 Calls @$.29
Note: The price of EWT was $13.89 when these call options were sold.

Two possible overall performance results(including commissions) for the EWT transactions would be as follows:
Stock Purchase Cost: $14,650.95
= ($14.65*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$567.10
= (1,000*($.31+$.29) - 2*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If unchanged at $13.89): -$768.95
= ($13.89-$14.65)*1,000 - $8.95 commissions
(c) Capital Appreciation (If assigned at $14.00): -$658.95
= ($14.00-$14.65)*1,000 - $8.95 commissions

Total Net Profit(If EWT price unchanged at $13.89): -$201.85
= (+$567.10 +$0.00 -$768.95)
Total Net Profit(If EWT price assigned at $14.00): -$91.85
= (+$567.10 +$0.00 -$658.95)

Absolute Return if Unchanged at $13.89: -1.4%
= -$201.85/$14,650.95
Annualized Return If Unchanged (ARIU) -8.2%
= ($201.85/$14,650.95)*(365/61 days)

Absolute Return if Assigned at $14.00: -0.6%
= -$91.85/$14,650.95
Annualized Return If Assigned (ARIA) -3.8%
= (-$91.85/$14,650.95)*(365/61 days)

Continuation Transactions -- General Motors Co., iShares MSCI China ETF, and iShares MSCI South Korea ETF

2011-08-29T16:47:00.003-04:00

Upon Aug2011 options expiration, twelve covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for three equities (General Motors Co., iShares MSCI China ETF, and iShares MSCI South Korea ETF) with Sep2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. General Motors Co.(GM) -- Continuation
The transactions history is as follows:
07/20/2011 Bought 300 GM @ $29.32
07/20/2011 Sold 3 GM Aug2011 $30.00 Calls @ $.79
Note: the price of GM was $29.45 when the call options were sold.
08/20/2011 Aug2011 GM options expired.
08/29/2011 Sold 3 GM Sept02,2011 $24.00 Calls @$.25
Note: The price of GM was $23.43 when these call options were sold.

Two possible overall performance results(including commissions) for the General Motors transactions are as follows:

Stock Purchase Cost: $8,804.95
= ($29.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$289.60
= ($.79+$.25)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $23.43): -$1,775.95
= ($23.43-$29.32)*300 - $8.95 commissions
(c) Capital Appreciation (If GM above $24.00 at Sept02,2011 expiration): -$1,596.95
+($24.00-$29.32)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $23.43): -$1,486.35
= (+$289.60 +$0.00 -$1,775.95)
Total Net Profit(If stock price above $24.00 at Sept02,2011 options expiration): -$1,307.35 = (+$289.60 +$0.00 -$1,596.95)

Absolute Return if Unchanged at $23.43: -16.9%
= -$1,486.35/$8,804.95
Annualized Return If Unchanged (ARIU): -140.0%
= (-$1,486.35/$8,804.95)*(365/44 days)

Absolute Return (If stock price above $24.00 at Sept02,2011 options expiration):
-14.8% = -$1,307.35/$8,804.95
Annualized Return (If stock price above $24.00 at expiration): -123.2%
= (-$1,307.35/$8,804.95)*(365/44 days)

2. 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.
08/29/2011 Sold 10 FXI Sep2011 $39.00 Calls @$.51
Note: The price of FXI was $37.73 when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$2,029.20
= (1,000*($.49+$.37+$.71+$.51) - 4*$12.70 commissions)
(b) Distribution Income: $685.55 = $.68555 * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $37.73 at expiration): -$7,078.95
= ($37.73-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If FXI assigned at $39.00 at expiration): -$5,808.95
= ($39.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $37.73 at expiration): -$4,364.20
= (+$2,029.20 +$685.55 -$7,078.95)
Total Net Profit (If FXI assigned at $39.00): -$3,094.20
= (+$2,029.20 +$685.55 -$5,808.95)

1. Absolute Return (If FXI unchanged at $37.73 at expiration): -9.7%
= -$4,364.20/$44,808.95
Annualized Return (If FXI unchanged at expiration): -23.4%
= (-$4,364.20/$44,808.95)*(365/152 days)

2. Absolute Return (If FXI assigned at $39.00 at expiration): -6.9%
= -$3,094.20/$44,808.95
Annualized Return If Assigned (ARIA): -16.6%
= (-$3,094.20/$44,808.95)*(365/152 days)

3. iShares MSCI South Korea ETF (EWY) -- Continuation
The transactions history is as follows:
07/18/2011 Bought 500 EWY @ $64.76
07/18/2011 Sold 5 EWY Aug2011 $66.00 Calls @ $1.45
Note: The price of EWY was $64.80 when the options were sold.
08/20/2011 Aug2011 EWY options expired.
08/29/2011 Sold 5 EWY Sep2011 $56.00 Calls @$1.36
Note: The price of EWY was $54.72 when these call options were sold.

Two possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $32,388.95
= ($64.76*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,379.60
= (500*($1.45+$1.36) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If equity price unchanged at $54.72):
-$5,028.95 = ($54.72-$64.76)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $56.00): -$4,388.95
= ($56.00-$64.76)*500 - $8.95 commissions

Total Net Profit(If equity price unchanged at $54.72): -$3,649.35
= (+$1,379.60 +$0.00 -$5,028.95)
Total Net Profit(If ETF price assigned at $56.00): -$3,009.35
= (+$1,379.60 +$0.00 -$4,388.95)

Absolute Return if Unchanged at $54.72: -11.3%
= -$3,649.35/$32,388.95
Annualized Return If Unchanged (ARIU) -67.4%
= (-$3,649.35/$32,388.95)*(365/61 days)

Absolute Return if Assigned at $56.00: -9.3%
= -$3,009.35/$32,388.95
Annualized Return If Assigned (ARIA) -55.6%
= (-$3,009.35/$32,388.95)*(365/61 days)

Continuation Transaction -- Mylan Inc.

2011-08-26T16:22:00.004-04:00

Today, a decision was made to retain the shares held in Mylan Inc.(MYL) and to establish a Sep2011 covered calls position. The detailed transactions as well as some possible results for this investment are as follows:

1. Mylan Inc.(MYL) -- Continuation
The transactions history is as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.
08/20/2011 Options assigned and 500 shares purchased at $23.00 each.
08/26/2011 Sold 5 MYL Sep2011 $20.00 Calls @$.55
Note: The price of MYL was $19.32 when these call options were sold.

Two possible overall performance results(including commissions) for the Mylan Inc.(MYL) transactions would be as follows:
100% Cash-Secured Cost Basis: $11,500.00
= $23.00*500

Net Profit:
(a) Options Income: +$779.60
= ($1.06+$.55)*500 shares - 2*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $19.32 at expiration):
-$1,848.95 = ($19.32-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MYL stock above $20.00 at Sep2011 expiration):
-$1,508.95 = ($20.00-$23.00)*500 -$8.95 commissions

Total Net Profit(If stock price unchanged at $19.32: -$1,069.35
= (+$779.60 +$0.00 -$1,848.95)
Total Net Profit(If stock price above $23.00 at Sep2011 options expiration): -$729.35
= (+$779.60 +$0.00 -$1,508.95)

1. Absolute Return if Unchanged at $19.32: -9.3%
= -$1,069.35/$11,500.00
Annualized Return If Unchanged (ARIU): -55.6%
= (-$1,069.35/$11,500.00)*(365/61 days)

1. Absolute Return if stock price above $23.00 and hence is assigned at Sep2011 options expiration: -6.3%
= -$729.35/$11,500.00
Annualized Return if Assigned (ARIA): -37.9%
= (-$729.35/$11,500.00)*(365/61 days)

Establish Alcoa Inc. Covered Calls

2011-08-26T10:32:00.003-04:00

A new covered calls position was established yesterday in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Alcoa Inc.(AA) covered calls as follows:

Established Alcoa Inc.(AA) Covered Calls for Sep2011:
08/26/2011 Bought 500 AA @ $11.49
08/26/2011 Sold 5 AA Sep2011 $12.00 Calls @ $.42
Note: the price of AA was $11.60 when the call options were sold.

Two possible overall performance results(including commissions) for the Alcoa transactions are as follows:
Stock Purchase Cost: $5,753.95
= ($11.49*500+$8.95 commission)

Net Profit:
(a) Options Income: +$197.30
= ($.42*500 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $11.49): -$8.95
= ($11.49-$11.49)*500 - $8.95 commissions
(c) Capital Appreciation (If AA above $12.00 at Sep2011 expiration): +$246.05
+($12.00-$11.49)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $11.49): +$188.35
= (+$197.30 +$0.00 -$8.95)
Total Net Profit(If stock price above $12.00 at Sep2011 options expiration): +$443.35= (+$197.30 +$0.00 +$246.05)

1. Absolute Return if Unchanged at $11.49: +3.3%
= +$188.35/$5,753.95
Annualized Return If Unchanged (ARIU): +54.3%
= (+$188.35/$5,753.95)*(365/22 days)

2. Absolute Return (If stock price above $12.00 at Sep2011 options expiration): +7.7%
= +$443.35/$5,753.95
Annualized Return (If stock price above $12.00 at expiration): +127.8%
= (+$443.35/$5,753.95)*(365/22 days)

The downside breakeven price at expiration is at $11.07 ($11.49 - $.42).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Sep2011 options expiration) for this Alcoa covered calls position is 63.8%. This compares with a probability of profit of 52.3% for a buy-and-hold of Alcoa over the same time period.

Continuation Transaction -- Microsoft Corp.

2011-08-25T10:42:00.003-04:00

Today, a decision was made to retain the shares held in Microsoft Corp.(MSFT) and to establish an Oct2011 covered calls position. The detailed transactions as well as some possible results for these investment are as follows:

1. Microsoft Corp.(MSFT) -- Continuation
The transactions history is as follows:
01/24/2011 Bought 700 MSFT @ $28.15
02/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
01/24/2011 Sell-to-Open(STO) 7 MSFT Feb2011 $29.00 CallS @ $.40
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 7 MSFT Apr2011 $26.00 Calls @ $.31
Note: the price of MSFT was $25.47 today when the options were sold.
04/16/2011 Apr2011 MSFT options expired.
04/26/2011 Sold 7 MSFT May2011 $26.00 Calls @ $.66
Note: The price of MSFT was $26.06 when these call options were sold.
05/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
05/31/2011 Sold 7 MSFT Jul2011 $26.00 Calls @ $.29
Note: The price of MSFT was $25.05 when these call options were sold.
07/14/2011 Buy-to-Close (BTC) 7 MSFT Jul2011 $26.00 Call Options @ $.50
07/14/2011 Sell-to-Open (STO) 7 MSFT Aug2011 $27.00 Call Options @ $.56
Note: The price of MSFT was $26.52 when these call options were sold.
08/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
08/20/2011 Aug2011 MSFT options expired.
08/25/2011 Sold 7 MSFT Oct2011 $26.00 Calls @$.74
Note: The price of MSFT was $25.07 when these call options were sold.

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $19,713.95
= ($28.15*700+$8.95 commission)

Net Profit:
(a) Options Income: +$1,636.80
= 700*($.40+$.31+$.66+$.29-$.50+$.56+$.74) - 6*$14.20 commissions)
(b) Dividend Income: +$336.00 ($.16/share * 700 shares * 3 payments)
(c) Capital Appreciation (If stock price unchanged at $25.07): -$2,164.95
= ($25.07-$28.15)*700 - $8.95 commissions
(c) Capital Appreciation (If assigned at $26.00): -$1,513.95
= ($26.00-$28.15)*700 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.07): -$192.15
= (+$1,636.80 +$336.00 -$2,164.95)
Total Net Profit(If stock assigned at $26.00): +$458.85
= (+$1,636.80 +$336.00 -$1,513.95)

1. Absolute Return if Stock Unchanged at $25.07: -1.0%
= -$192.15/$19,713.95
An-ualized Return If Unchanged (ARIU): -1.3%
= (-$192.15/$19,713.95)*(365/271 days)

2. Absolute Return if Assigned at $26.00: +2.3%
= +$458.85/$19,713.95
Annualized Return If Assigned (ARIA): +3.1%
= (+$458.85/$19,713.95)*(365/271 days)

Continuation Transaction -- Best Buy Corp.

2011-08-24T19:58:00.003-04:00

Today, a decision was made to retain the shares held in Best Buy Corp.Inc.(BBY) and to establish a Sep2011 covered calls position. The detailed transactions as well as some possible results for these investment are as follows:

1. Best Buy Corp. Inc.(BBY) -- Continuation
The transactions history is as follows:
01/24/2011 Bought 300 BBY @ $35.13
01/24/2011 Sell-to-Open(STO) 3 BBY Feb2011 $36.00 Calls @ $.57
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 3 BBY Apr2011 $34.00 Calls @ $.49
Note: the price of BBY was $31.92 today when the options were sold.
04/16/2011 Apr2011 BBY options expired.
04/26/2011 Sold 3 BBY May2011 $31.00 Calls @ $.60
Note: The price of BBY was $30.59 when these call options were sold.
05/20/2011 Bought-to-Close(BTC) 3 BBY May3011 $31.00 Calls @ $.36
Note: The price of BBY was $31.31 when the options were bought back.
05/20/2011 Sell-to-Open(STO) 3 BBY Jun2011 $32.00 Calls @ $.94
Note: The price of BBY was $31.43 when these options were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of BBY was $31.01 upon options expiration.
06/28/2011 Sold 3 BBY Aug2011 $33.00 Calls @ $.83
Note: price of BBY stock was $31.90 when these options were sold.
08/20/2011 Aug2011 BBY options expired.
08/24/2011 Sold 3 BBY Sep2011 $25.00 Calls @$1.32
Note: The price of BBY was $24.73 when these call options were sold.

Two possible overall performance results(including commissions) for the Best Buy Corp.(BBY) transactions would be as follows:
Stock Purchase Cost: $10,547.95
= ($35.13*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,238.60
= (300*($.57+$.49+$.60-$.36+$.94+$.83+$1.32) - 7*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $24.73):
-$3,128.95 = ($24.73-$35.13)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $25.00): -$3,047.95
= ($25.00-$35.13)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.73): -$1,890.35
= (+$1,238.60 +$0.00 -$3,128.95)
Total Net Profit(If stock assigned at $25.00): -$1,809.35
= (+$1,238.60 +$0.00 -$3,047.95)

1. Absolute Return if Unchanged at $24.73: -17.9%
= -$1,890.35/$10,547.95
Annualized Return If Unchanged (ARIU): -27.7%
= (-$1,890.35/$10,547.95)*(365/236 days)

2. Absolute Return if Assigned at $25.00: -17.2%
= -$1,809.35/$10,547.95
Annualized Return If Assigned (ARIA): -26.5%
= (-$1,809.35/$10,547.95)*(365/236 days)

Covered Calls Continuation Transactions -- International Paper Co. and Valero Energy Corp.

2011-08-24T11:03:00.005-04:00

Upon Aug2011 options expiration, twelve covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for two stocks (International Paper Co. and Valero Energy Corp.) with Sep2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
05/17/2011 Bought 500 IP @ $31.26
05/17/2011 Sold 5 IP Jun2011 $32.00 Calls @ $.82
06/18/2011 Jun2011 Options Expired
Note: the price of IP was $26.57 upon options expiration.
06/21/2011 Sold 5 IP Jul2011 $30.00 Calls @ $.38
Note: price of IP stock was $28.56 when these options were sold.
07/16/2011 Jul2011 IP options expired.
07/18/2011 Sold 5 IP Aug2011 $30.00 Calls @$.90
Note: The price of IP was $29.79 when these call options were sold.
08/11/2011 Ex-Dividend of $.2625 per share
08/20/2011 Aug2011 IP options expired.
08/24/2011 Sold 5 IP Sep2011 $26.00 Calls @$.78
Note: The price of IP was $25.16 when these call options were sold.

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $15,638.95
= ($31.26*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,389.20
= (500*($.82+$.38+$.90+$.78) - 4*$12.70 commissions)
(b) Dividend Income: $131.25 = $.2625 * 500 shares
(c) Capital Appreciation (If stock unchanged at $25.16 at expiration): -$3,058.95
= ($25.16-$31.26)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $26.00): -$2,638.95
= ($26.00-$31.26)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at $25.16 at expiration): -$1,538.50
= (+$1,389.20 +$131.25 -$3,058.95)
Total Net Profit (If stock assigned at $26.00): -$1,118.50
= (+$1,389.20 +$131.25 -$2,638.95)

1. Absolute Return (If stock unchanged at $25.16 at expiration): -9.8%
= -$1,538.50/$15,638.95
Annualized Return (If stock unchanged at expiration): -29.2%
= (-$1,538.50/$15,638.95)*(365/123 days)

2. Absolute Return (If stock assigned at $26.00 at expiration): -7.2%
= -$1,118.50/$15,638.95
Annualized Return (If stock assigned at $26.00): -21.2%
= (-$1,118.50/$15,638.95)*(365/123 days)

2. Valero Energy Corp.(VLO) -- Continuation
The transactions history is as follows:
07/20/2011 Bought 300 VLO @ $25.72
07/20/2011 Sold 3 VLO Aug2011 $26.00 Calls @ $.97
Note: the price of VLO was $25.81 when the call options were sold.
08/15/2011 Ex-dividend payment of $.05 per share.
08/20/2011 Aug2011 VLO options expired.
08/24/2011 Sold 3 VLO Sep2011 $22.00 Calls @$.56
Note: The price of VLO was $20.40 when these call options were sold.

Two possible overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions would be as follows:
Stock Purchase Cost: $7,724.95
= ($25.72*300+$8.95 commission)

Net Profit:
(a) Options Income: +$442.60
= ($.97+$.58)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05*300 shares (ex-dividend on 8/15/2011)
(c) Capital Appreciation (If stock price unchanged at $20.40): -$1,604.95
= ($20.40-$25.72)*300 - $8.95 commissions
(c) Capital Appreciation (If VLO above $22.00 at Sep2011 expiration): -$1,124.95
+($22.00-$25.72)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.40): -$1,147.35
= (+$442.60 +$15.00 -$1,604.95)
Total Net Profit(If stock price above $22.00 at Sep2011 options expiration): -$667.35= (+$442.60 +$15.00 -$1,124.95)

Absolute Return if Unchanged at $20.40: -14.6%
= -$1,124.95/$7,724.95
Annualized Return If Unchanged (ARIU): -90.1%
= (-$1,124.95/$7,724.95)*(365/59 days)

Absolute Return (If stock price above $22.00 at Sep2011 options expiration): -8.6%
= -$667.35/$7,724.95
Annualized Return (If stock price above $26.00 at expiration): -53.4%
= (-$667.35/$7,724.95)*(365/59 days)

Establish Apple Inc.(AAPL) Covered Call

2011-08-22T10:45:00.007-04:00

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of an Apple Inc.(AAPL) covered call as follows:

Established Apple Inc.(AAPL) Covered Call for Sep2011:
08/22/2011 Bought 100 AAPL @ $359.986
08/22/2011 Sold 1 AAPL Sep2011 $375.00 Call @ $8.45
Note: The call option was sold today when the AAPL stock was trading at $361.52.

Apple Inc. designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players, as well as sells various related software, services, peripherals, and networking solutions.
The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells various third-party Macintosh, iPhone, and iPod and now iPad compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store. It sells to consumers, small and mid-sized businesses, education, enterprise, government, and creative customers. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.

Apple is hitting on all cylinders with its: (1) ongoing growth of Macs, iPhones, and iPads:

(2) accelerating growth in iPads and iPad applications; and
(3) exciting new initiatives with:

iCloud beginning later this year; and

A potential iPhone deal to begin distribution via China Mobile in 2012 (who currently has over 600 million existing customers in China); and

Possibility of iTV as early as 2012.

Apple Inc. rates as a strong buy on the Covered Calls Advisor's Buy Alerts spreadsheet (see below) with an overall rating of 18.94, well above the Buy Alert threshold of 16.0. In terms of valuation, the current P/E Ratio is only 13 based on FY11 (which ends in Sept 2011)estimated earnings per share of $27.50. FY12 earnings are likely to grow another 27% to approximately $35.00 per share. Based on this expectation, a one-year target price of $500 is reasonable, which would be a 39% increase above the $360 purchase price today.

Note: Click on chart above for larger image.

Some possible overall performance results(including commissions) for the AAPL transactions would be as follows:
Stock Purchase Cost: $36,007.55
= ($359.986*100+$8.95 commission)

Net Profit:
(a) Options Income: +$835.30
= (100*$8.45 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $359.986):
-$8.95 = ($359.986-$359.986)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $375.00): +$1,492.45
= ($375.00-$359.986)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $359.986): +$826.35
= (+$835.30 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $375.00): +$2,327.75
= (+$835.30 +$0.00 +$1,492.45)

Absolute Return if Unchanged at $359.986: +2.3%
= +$826.35/$36,007.55
Annualized Return If Unchanged (ARIU) +32.2%
= (+$826.35/$36,007.55)*(365/26 days)

Absolute Return if Assigned at $375.00: +6.5%
= +$2,327.75/$36,007.55
Annualized Return If Assigned (ARIA): +90.8%
= (+$2,327.75/$36,007.55)*(365/26 days)

Closed -- Petrobras ADR

2011-08-22T10:32:00.002-04:00

The Aug2011 covered calls position in Petrobras ADR expired last Friday. Today, a decision was made to sell the 300 shares in the Covered Calls Advisor Portfolio. The detailed transactions history for this PBR position and the result for this PBR investment are as follows:

The transactions history for the Petrobras ADR (PBR) position:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 today when these options were sold.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/03/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.
12/07/2010 $41.42 Dividend = ($.138 Net Dividend x 300 shares)
12/18/2010 Dec2010 Options Expired
Note: The price of PBR was $34.08 upon Dec2010 options expiration.
12/21/2010 Sold 3 PBR Jan2011 $35.00 Calls @ $.59
Note: The price of PBR was $34.18 when these options were sold.
01/06/2011 $61.03 Dividend = ($.203 Net Dividend x 300 shares)
01/21/2011 Buy-to-Close (BTC) 3 PBR Jan2011 $35.00 Call Options @ $1.35
01/21/2011 Sell-to-Open (STO) 3 PBR Feb2011 $37.00 Call Options @ $.89
02/18/2011 Buy-to-Close (BTC) 3 PBR Feb2011 $37.00 Call Options @ $.85
02/18/2011 Sell-to-Open (STO) 3 PBR Mar2011 $37.00 Call Options @ $1.67
03/18/2011 Buy-to-Close (BTC) 3 PBR Mar2011 $37.00 Call Options @ $2.19
03/18/2011 Sell-to-Open (STO) 3 PBR Apr2011 $40.00 Call Options @ $1.01
Note: The price of PBR was $39.23 when these options were sold.
04/16/2011 Apr2011 PBR Options Expired.
Note: the price of PBR was $37.81 upon options expiration.
04/20/2011 Sold 3 PBR May2011 $38.00 Calls @ $.87
Note: the price of PBR was $37.51 when these call options were sold.
05/21/2011 May2011 Options Expired
Note: the price of PBR was $33.87 upon options expiration.
06/28/2011 Sold 3 PBR Jul2011 $33.00 Calls @ $.59
Note: price of PBR was $32.82 when these options were sold.
07/16/2011 Jul2011 PBR options expired.
07/18/2011 Sold 3 PBR Aug2011 $33.00 Calls @$.60
08/20/2011 Aug2011 Options Expired.
08/22/2011 Sold 300 PBR at $27.74

The overall performance result (including commissions) for the Petrobras (PBR) transactions was as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,583.20
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89-$.85+$1.67-$2.19+$1.01+$.87+$.59+$.60) - 14*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (PBR sold at $27.74): -$3,488.95
= ($27.74-$39.34)*300 - $8.95 commissions

Total Net Profit(PBR sold at $27.74): -$1,719.15
= (+$1,583.20 +$186.60 -$3,488.95)

Absolute Return (PBR sold at $27.74): -14.6%
= -$1,719.15/$11,810.95
Annualized Return: -12.5%
= (-$1,719.15/$11,810.95)*(365/425 days)

August 2011 Expiration Results

2011-08-22T09:21:00.004-04:00

The Covered Calls Advisor Portfolio (CCAP) contained a total of thirteen covered calls positions with August 2011 expirations, with the following results:

- Twelve covered calls positions in the CCAP (Best Buy Corp., General Motors Co., International Paper Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Microsoft Corp., Mylan Inc., Petrobras ADR, ProShares UltraShort 20+ Year Treasury ETF, and Valero Energy Corp.) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish September 2011 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 covered calls position (China Mobile Ltd ADR) was in-the-money and was assigned (i.e. stock called away) upon option expiration last Friday. The detailed history for this position is provided below.

1. China Mobile Ltd ADR (CHL) -- Closed
The transactions history is as follows:
02/23/2011 Bought 200 CHL @ $46.479
02/23/2011 Sold 2 CHL Mar2011 $47.50 Calls @ $.60
03/19/2011 Mar2011 Options Expired
03/30/2011 Sold 2 CHL May2011 $47.50 Calls @ $.55
Note: price of CHL was $46.22 when these options were sold.
05/10/2011 Ex-dividend payment of $.9237 per share.
05/21/2011 May2011 Options Expiration will occur.
05/31/2011 Sold 2 CHL Jul2011 $47.50 Calls @ $.35
Note: The price of CHL was $45.59 when these call options were sold.
07/16/2011 Jul2011 CHL options expired.
07/18/2011 Sold 2 CHL Aug2011 $47.50 Calls @$.55
Note: The price of CHL was $46.45 when these call options were sold.

The result(including commissions) for the China Mobile Ltd ADR (CHL) transactions was as follows:

Stock Purchase Cost: $9,304.75
= ($46.479*200+$8.95 commission)

Net Profit:
(a) Options Income: +$368.20
= ($.60 + $.55 + $.35 + $.55)*200 shares - 4*$10.45 commissions
(b) Dividend Income: +$184.74 = $.9237 * 200 shares
(c) Capital Appreciation (CHL assigned at $47.50): +$195.25
+($47.50 -$46.479)*200 - $8.95 commissions

Total Net Profit(Stock assigned at $47.50 at Aug2011 options expiration): +$748.19
= (+$368.20 +$184.74 +$195.25)

Absolute Return (CHL assigned at $47.50): +8.0%
= +$748.19/$9,304.75
Annualized Return: +16.5%
= (+$748.19/$9,304.75)*(365/178 days)

Overall Market Meter Rating Remains "Slightly Bullish"

2011-08-16T11:56:00.006-04:00

Each month during options expiration week, the Covered Calls Advisor re-calculates each of the current values for each of the factors used to determine the "Overall Market Meter" rating. Prior to this month, there have been nine factors used in compiling the Overall Market Meter sentiment each month. Beginning this month, the Conference Board's Leading Economic Index has been removed. The Covered Calls Advisor's research on this indicator has concluded that it is not as useful as a macroeconomic stock market indicator as was originally believed. The remaining eight factors now used can be categorized into 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) factors.

The current Market Meter Average of 3.50 is below the 4.11 of last month. The 3.50 is exactly on the inflection point between Neutral (range of 2.5 to 3.5) and Slightly Bullish (range from 3.5 to 4.5). Since the most recent rating has been Slightly Bullish, this rating will be retained unless the Overall Market Meter average falls below 3.50, in which case the overall sentiment would change to Neutral. Of the eight factors used to determine the Overall Market Meter rating: (1) Three (Business Cycle and Unemployment Claims, P/E Ratios, and Future Earnings Growth) remain unchanged from the prior analysis last month; (2) Two factors improved from last month (Earnings-to-Bond Yield Spread went from Slightly Bullish to Bullish and Total Market Index Divided by GDP improved from Slightly Bearish to Neutral); and (3) Three factors declined (Bank Lending changed from Bullish to Slightly Bullish; Price Trend switched from Bullish to Bearish; and Interest Rates changed from Slightly 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 August 2011 options expiration this week, newly established positions for September 2011 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

Country Value Rankings

2011-08-14T10:10:00.016-04:00

About once a quarter, the Covered Calls Advisor calculates the seven factors used to determine the current "Country Value Rankings". Today's results (shown in the table below), provides a value-oriented and objective framework that assists this advisor to make decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's portfolio.

A comprehensive approach to asset allocation goes beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.); it should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Legendary investor John Templeton was a leader in advocating for developing a global-oriented value investing perspective to achieve investing outperformance.

Note: For expanded view, left click on this spreadsheet

The Country Value Rankings table above is based on a weighted-average ranking system. You will notice that there are seven categories (and one factor for each category) used in the analysis of each country as follows:

The next-to-last column on the Country Value Rankings spreadsheet shows the Weighted Average Summation Total for each country. It is interesting that the Top 4 countries are Asian -- China, Hong Kong, Taiwan, and South Korea. Thus, investments in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog) will be substantially overweighted in these higher rated countries. It should also be noted that the U.S. is ranked 16th of the 21 countries rated, so U.S.-based companies selected for investment will be those with significant exposure to sales in countries/regions with relatively high expected GDP Growth in 2012.

This Country Value Rankings spreadsheet is detailed in terms of both the methodolgy used and the resources used to capture the information for each country. If you are interested in these details and would like further information or clarification, please share your comments and questions in writing. They are always welcomed. Click the 'comments' link below to post your feedback. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog.

Hopefully, this information is helpful in your thinking and analysis of your own equities selection methods related to your covered calls investing process!

Regards and Godspeed to All,

Jeff

Returns -- Through July 2011

2011-07-29T16:11:00.004-04:00

1. July 2011 Year-to-Date Results:

As shown in the chart below, the Covered Calls Advisor Portfolio (CCAP) has outperformed the benchmark Russell 3000 index by 2.92 percentage points (+5.62% minus +2.70%) over the first seven months of calendar year 2011.

CCAP Absolute Return (Jan 1st through July 31st, 2011) = +5.62%
($303,611.69-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through July 31st, 2011) = +2.70%($76.97-$74.95)/$74.95

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark were as follows:

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.

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. As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating remains "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

Closed -- Freeport McMoRan Copper and Gold, Inc. Weekly Covered Calls Position

2011-07-23T06:47:00.003-04:00

This past Monday, the Covered Calls Advisor established a new covered calls position in Freeport McMoRan Copper and Gold with a one-week options expiration date of July 22, 2011. The position transactions and the results are detailed below:

1. Freeport McMoRan Copper and Gold Inc.(FCX)
The transactions were as follows:
07/18/2011 Bought 200 FCX @ $54.95
07/18/2011 Sold 2 FCX Jul 22, 2011 $52.50 Calls @ $2.88
Note: The price of FCX was $54.98 when the options were sold.
07/23/2011 FCX options closed in-the-money and stock assigned at $52.50 strike price.
Note: The closing price of FCX at expiration was $55.67.

The overall performance result(including commissions) for this FCX covered calls position was follows:
Stock Purchase Cost: $10,998.95
= ($54.95*200+$8.95 commission)

Net Profit:
(a) Options Income: +$565.55
= (200*$2.88 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $52.50): -$498.95
= ($52.50-$54.95)*200 - $8.95 commissions

Total Net Profit(FCX assigned at $52.50): +$66.60
= (+$565.55 +$0.00 -$498.95)

Absolute Return (FCX stock Assigned at $52.50): +0.6%
= +$66.60/$10,998.95
Annualized Return: +44.2%
= (+$66.60/$10,998.95)*(365/5 days)

As you might recall, the Covered Calls Advisor invests almost exclusively in Monthly positions. This Weekly position was established on an experimental basis primarily to begin to evaluate whether Weeklies should have a more significant role in the Covered Calls Advisor Portfolio (CCAP). Despite the good result achieved with this particular FCX Weekly, this advisor has mixed feelings about seeking Weeklies as a part of the portfolio. The most enticing aspect of Weeklies is the prospect of capturing a significantly higher options income per day (i.e. higher theta) than is available from a comparable Monthly. However, this advantage is significantly mitigated by the increased commission costs frequency (i.e. 4 or 5 option positions sold per month instead of only one). Also, this advisor is significantly more comfortable with making a monthly forecast of the stock market's direction (i.e. Overall Market Meter monthly forecast). It seems close to impossible to forecast the market with any degree of confidence on a weekly basis. Thus, this advisor noticed that with this FCX Weekly postion, a more conservative (moderately in-the-money) position was established, whereas most other Monthly positions in the CCAP had been established slightly out-of-the-money which is consistent with the Covered Calls Advisor's current Overall Market Meter outlook of slightly bullish. Finally, this advisor has been investing successfully via Monthly covered calls for decades now, so there is a personal comfort level with Monthlies that is firmly entrenched. So, the Covered Calls Advisor will continue to experiment occasionally with Weeklies, but for now will continue to invest almost exclusively in Monthlies.

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.

Jeff

Closed -- Caterpillar Inc. Weekly 100% Cash-Secured Put Options Short Position

2011-07-21T10:37:00.004-04:00

With this CAT weekly options expiration being tomorrow, and also with CAT scheduled to report quarterly earnings prior to the market open tomorrow, the Covered Calls Advisor decided to eliminate the risk associated with the earnings report and closed out the short puts position in CAT today at a very nice profit. The transactions history is:

07/18/2011 Sold 2 Caterpillar Inc. (CAT) Aug2011 $110.00 Puts @ $4.30
Note: the price of CAT stock was $106.86 today when these puts were sold.
07/21/2011 Bought-to-Close 2 CAT Aug2011 $110.00 Puts @ $1.10
Note: The price of CAT was $111.90 when this transaction was executed.

The overall performance result(including commissions) for the Caterpillar Inc. (CAT) transaction was as follows:
100% Cash-Secured Cost Basis: $22,000.00
= $110.00*200

Net Profit:
(a) Options Income: +$619.10
= ($4.30-$1.10)*200 shares - 2*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($110.00-$110.00)*200

Total Net Profit: +$619.10
= (+$619.10 +$0.00 +$0.00)

Absolute Return: +2.8%
= +$619.10/$22,000.00

The $619.10 profit on this trade captured 74% of the maximum potential profit of $840.60 that would have been achieved if the position would have been held until expiration tomorrow (Friday) afternoon's closing and if the stock had remained about $110.00. With the uncertainty surrounding the potential stock price movement after earnings are released tomorrow morning, it was determined that the most prudent decision was to capture the $619.10 profit now and to thereby abandon the potential for an additional $221.50 =($840.60-$619.10) profit. The Covered Calls Advisor decided to show only the Absolute Return for this transaction and to forego the normal practice of converting the absolute return to its associated annualized return on investment percent. This +2.7% absolute return in only 3 days is an outstanding result, but extrapolating to a very, very large annualized return would not provide a meaningful comparison considering the very short duration of this trade.

Covered Call Continuation Transaction -- ProShares UltraShort 20+ Years Treasury ETF (TBT)

2011-07-21T10:17:00.002-04:00

The Jul2011 covered calls position in ProShares UltraShort 20+ Years Treasury ETF (TBT) expired last Friday. Today, a decision was made to retain the 200 shares in ProShares UltraShort 20+ Years Treasury ETF (TBT) in the Covered Calls Advisor Portfolio and to re-establish a covered calls position with an Aug2011 expiration and at the $34.00 strike price. The detailed transactions history for this TBT position as well as possible results for this investment are as follows:

1. ProShares UltraShort 20+ Years Treasury ETF (TBT) -- Continuation
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.
07/16/2011 Jul2011 TBT options expired.
07/21/2011 Sold 2 TBT Aug2011 $34.00 Calls @$.77
Note: The price of TBT was $33.28 when these call options were sold.

Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$272.67
= 200*($.36+$.39+$.77) - 3*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $33.28):
-$502.95 = ($33.28-$35.75)*200 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $34.00): -$358.95
= ($34.00-$35.75)*200 - $8.95 commissions

Total Net Profit(If TBT unchanged at $33.28): -$230.30
= (+$272.65 +$0.00 -$502.95)
Total Net Profit(If TBT exercised at $34.00): -$86.30
= (+$272.65 +$0.00 -$358.95)

Absolute Return if Unchanged at $33.28: -3.2%
= -$230.30/$7,158.95
Annualized Return If Unchanged (ARIU) -10.7%
= (-$230.30/$7,158.95)*(365/110 days)

Absolute Return if Assigned at $34.00: -1.2%
= -$86.30/$7,158.95
Annualized Return If Assigned (ARIA) -4.0%
= (-$86.30/$7,158.95)*(365/110 days)

Establish General Motors Co. Covered Calls

2011-07-21T08:59:00.003-04:00

A new covered calls position was established yesterday in the Covered Calls Advisor Portfolio(CCAP) with the purchase of General Motors Co.(GM) covered calls as follows:

Established General Motors Co.(GM) Covered Calls for Aug2011:
07/20/2011 Bought 300 GM @ $29.32
07/20/2011 Sold 3 GM Aug2011 $30.00 Calls @ $.79
Note: the price of GM was $29.45 when the call options were sold.

GM rates slightly above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (see below that Total Points of 16.44 is above this advisor's required buy threshold of 16.0). GM's balance sheet has solidified and the current valuation metrics are extremely attractive. There is 50%+ upside potential in GM's stock price over the next year if two situations occur: (1) GM achieves reasonably successful new product launches for the 2012 and 2013 model years; and (2) there is an upturn in annualized GDP in the U.S. in the vicinity of 3.0%. The Covered Calls Advisor believes that both of these outcomes are likely, so a moderately bullish covered calls position in GM was established.

Note: Click on chart above for larger image.

Two possible overall performance results(including commissions) for the General Motors transactions are as follows:

Stock Purchase Cost: $8,804.95
= ($29.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$225.80
= ($.79*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.32): -$8.95
= ($29.32-$29.32)*300 - $8.95 commissions
(c) Capital Appreciation (If GM above $30.00 at Aug2011 expiration): +$195.05
+($30.00-$29.32)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.32): +$216.85
= (+$225.80 +$0.00 -$8.95)
Total Net Profit(If stock price above $30.00 at Aug2011 options expiration): +$420.85= (+$225.80 +$0.00 +$195.05)

Absolute Return if Unchanged at $29.32: +2.5%
= +$216.85/$8,804.95
Annualized Return If Unchanged (ARIU): +29.0%
= (+$216.85/$8,804.95)*(365/31 days)

Absolute Return (If stock price above $30.00 at Aug2011 options expiration): +4.8%
= +$420.85/$8,804.95
Annualized Return (If stock price above $30.00 at expiration): +56.3%
= (+$420.85/$8,804.95)*(365/31 days)

The downside breakeven price at expiration is at $28.53 ($29.32 - $.79).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Aug2011 options expiration) for this General Motors covered calls position is 64.3%. This compares with a probability of profit of 51.7% for a buy-and-hold of GM over the same time period.

Establish Valero Energy Corp. Covered Calls

2011-07-20T10:32:00.002-04:00

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Valero Energy Corp.(VLO) covered calls as follows:

Established Valero Energy Corp.(VLO) Covered Calls for Aug2011:
07/20/2011 Bought 300 VLO @ $25.72
07/20/2011 Sold 3 VLO Aug2011 $26.00 Calls @ $.97
Note: the price of VLO was $25.81 when the call options were sold.
08/15/2011 Ex-dividend payment of $.05 per share.

With total capacity of approximately 3.0 million barrels per day, Valero Energy Corp. is the largest petroleum refiner and marketer in the U.S. The company has the industry's most complex and sophisticated refining system. Most of its 16 refineries throughout the U.S., Canada and Aruba are able to process heavy, low-quality crude oil. The company has a growing network of retail outlets in the Great Plains, Southwest and Northeast.

VLO rates above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 17.92 is above this advisor's required threshold of 16.0), so it was decided to establish a covered calls position in VLO with an Aug2011 expiration.

Note: Click on chart above for larger image.

Two possible overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions would be as follows:

Stock Purchase Cost: $7,724.95
= ($25.72*300+$8.95 commission)

Net Profit:
(a) Options Income: +$279.80
= ($.97*300 shares) - $11.20 commissions
(b) Dividend Income: +$15.00 = $.05*300 shares (ex-dividend expected on 8/15/2011)
(c) Capital Appreciation (If stock price unchanged at $25.72): -$8.95
= ($25.72-$25.72)*300 - $8.95 commissions
(c) Capital Appreciation (If VLO above $26.00 at Aug2011 expiration): +$75.05
+($26.00-$25.72)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.72): +$285.85
= (+$279.80 +$15.00 -$8.95)
Total Net Profit(If stock price above $26.00 at Aug2011 options expiration): +$369.85= (+$279.80 +$15.00 +$75.05)

Absolute Return if Unchanged at $25.72: +3.7%
= +$285.85/$7,724.95
Annualized Return If Unchanged (ARIU): +43.6%
= (+$285.85/$7,724.95)*(365/31 days)

Absolute Return (If stock price above $26.00 at Aug2011 options expiration): +4.8%
= +$369.85/$7,724.95
Annualized Return (If stock price above $26.00 at expiration): +56.4%
= (+$369.85/$7,724.95)*(365/23 days)

The downside breakeven price at expiration is at $24.75 ($25.72 - $.97).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Aug2011 options expiration) for this Valero Energy Corp.(VLO) covered calls position is 66.1%. This compares with a probability of profit of 51.8% for a buy-and-hold of Valero over the same time period.

Covered Calls Continuation Transactions

2011-07-19T21:28:00.005-04:00

Upon Jul2011 options expiration, seven covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. On Monday, a decision was made to re-establish covered calls positions for two equities (iShares MSCI China ETF and Petrobras ADR) by selling call options to establish Aug2011 covered calls. Today, covered calls positions were re-established for four additional equities (China Mobile Ltd., International Paper Co., iShare Emerging Markets ETF, and Morgan Stanley) that had previously expired upon the Jul2011 options expiration. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. China Mobile Ltd.(CHL) -- Continuation
The transactions history is as follows:
02/23/2011 Bought 200 CHL @ $46.479
02/23/2011 Sold 2 CHL Mar2011 $47.50 Calls @ $.60
03/19/2011 Mar2011 Options Expired
03/30/2011 Sold 2 CHL May2011 $47.50 Calls @ $.55
Note: price of CHL was $46.22 when these options were sold.
05/10/2011 Ex-dividend payment of $.9237 per share.
05/21/2011 May2011 Options Expiration will occur.
05/31/2011 Sold 2 CHL Jul2011 $47.50 Calls @ $.35
Note: The price of CHL was $45.59 when these call options were sold.
07/16/2011 Jul2011 CHL options expired.
07/18/2011 Sold 2 CHL Aug2011 $47.50 Calls @$.55
Note: The price of CHL was $46.45 when these call options were sold.

Two possible overall performance results(including commissions) for the China Mobile Ltd ADR (CHL) transactions would be as follows:

Stock Purchase Cost: $9,304.75
= ($46.479*200+$8.95 commission)

Net Profit:
(a) Options Income: +$368.20
= ($.60 + $.55 + $.35 + $.55)*200 shares - 4*$10.45 commissions
(b) Dividend Income: +$184.74 = $.9237 * 200 shares
(c) Capital Appreciation (If stock price unchanged at $46.45): -$14.75
= ($46.45 -$46.479)*200 - $8.95 commissions
(c) Capital Appreciation (If CHL assigned at $47.50 at Aug2011 expiration): +$195.25
+($47.50 -$46.479)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.45): +$538.19
= (+$368.20 +$184.74 -$14.75)
Total Net Profit(If stock price above $47.50 at Aug2011 options expiration): +$748.19= (+$368.20 +$184.74 +$195.25)

Absolute Return if Unchanged at $46.45: +5.8%
= +$538.19/$9,304.75
Annualized Return If Unchanged (ARIU): +11.9%
= (+$538.19/$9,304.75)*(365/178 days)

Absolute Return (If stock assigned at $47.50 upon Aug2011 options expiration): +8.0%
= +$748.19/$9,304.75
Annualized Return if stock assigned at expiration (ARIA): +16.5%
= (+$748.19/$9,304.75)*(365/178 days)

2. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
05/17/2011 Bought 500 IP @ $31.26
05/17/2011 Sold 5 IP Jun2011 $32.00 Calls @ $.82
06/18/2011 Jun2011 Options Expired
Note: the price of IP was $26.57 upon options expiration.
06/21/2011 Sold 5 IP Jul2011 $30.00 Calls @ $.38
Note: price of IP stock was $28.56 when these options were sold.
07/16/2011 Jul2011 IP options expired.
07/18/2011 Sold 5 IP Aug2011 $30.00 Calls @$.90
Note: The price of IP was $29.79 when these call options were sold.
08/11/2011 Ex-Dividend of $.2625 per share

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $15,638.95
= ($31.26*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,011.90
= (500*($.82+$.38+$.90) - 3*$12.70 commissions)
(b) Dividend Income: $131.25 = $.2625 * 500 shares
(c) Capital Appreciation (If stock unchanged at $29.79 at expiration): -$743.95
= ($29.79-$31.26)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $30.00): -$638.95
= ($30.00-$31.26)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at $29.79 at expiration): +$399.20
= (+$1,011.90 +$131.25 -$743.95)
Total Net Profit (If stock assigned at $30.00): +504.20
= (+$1,011.90 +$131.25 -$638.95)

1. Absolute Return (If stock unchanged at $29.79 at expiration): +2.6%
= +$399.20/$15,638.95
Annualized Return (If stock unchanged at expiration): +9.8%
= (+$399.20/$15,638.95)*(365/95 days)

2. Absolute Return (If stock assigned at $30.00 at expiration): +3.2%
= +$504.20/$15,638.95
Annualized Return (If stock assigned at $30.00): +12.4%
= (+$504.20/$15,638.95)*(365/95 days)

3. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,344.20
= [500*($.83 +$.35+$.62+$.99) - 4*$12.70 commissions]
(b) Distribution Income: $230.46 = $.46092 * 500 shares
(c) Capital Appreciation (If EEM unchanged at $46.55 at expiration): -$638.95
= ($46.55-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): -$413.95
= ($47.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $46.55 at expiration): +$935.71
= (+$1,344.20 +$230.46 -$638.95)
Total Net Profit (If EEM assigned at $47.00): +$1,160.71
= (+$1,344.20 +$230.46 -$413.95)

1. Absolute Return (If stock unchanged at $46.55 at expiration): +3.9%
= +$935.71/$23,913.95
Annualized Return (If stock unchanged at expiration): +11.5%
= (+$935.71/$23,913.95)*(365/124 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +4.9%
= +$1,160.71/$23,913.95
Annualized Return (If stock assigned at $49.00): +14.3%
= (+$1,160.71/$23,913.95)*(365/124 days)

4. Morgan Stanley (MS) -- Continuation
The transactions history is as follows:
06/03/2011 Bought 300 MS @ $22.988
06/03/2011 Sold 3 MS Jul2011 $25.00 Calls @ $.26
Note: the price of MS was $23.14 when the call options were sold.
07/16/2011 Jul2011 MS options expired.
07/18/2011 Sold 3 MS Sep2011 $22.00 Calls @$.66
Note: The price of MS was $20.82 when these call options were sold.
07/27/2011 Ex-Dividend of $.05 per share

Two possible overall performance results(including commissions) for the Morgan Stanley transactions would be as follows:
Stock Purchase Cost: $6,905.35
= ($22.988*300+$8.95 commission)

Net Profit:
(a) Options Income: +$161.60
= 300*($.26+$.66) - 2*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05 * 300 shares
(c) Capital Appreciation (If MS unchanged at $20.82):
-$442.55 = ($20.82-$22.988)*300 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $22.00): -$305.35
= ($22.00-$22.988)*300 - $8.95 commissions

Total Net Profit(If MS unchanged at $20.82): -$265.95
= (+$161.60 +$15.00 -$442.55)
Total Net Profit(If MS exercised at $22.00): -$128.75
= (+$161.60 +$15.00 -$305.35)

Absolute Return if Unchanged at $20.82: -3.9%
= -$265.95/$6,905.35
Annualized Return If Unchanged (ARIU) -13.3%
= (-$265.95/$6,905.35)*(365/106 days)

Absolute Return if Assigned at $37.00: -1.9%
= -$128.75/$6,905.35
Annualized Return If Assigned (ARIA) -6.4%
= (-$128.75/$6,905.35)*(365/106 days)

Establish iShares MSCI Taiwan ETF Covered Calls

2011-07-19T10:38:00.005-04:00

Today, a new covered calls position was established in the iShares MSCI Taiwan ETF (EWT). This position was legged into since the 1,000 shares of EWT were purchased yesterday and the ten Aug2011 call options were sold today as follows:

Established iShares MSCI Taiwan ETF (EWT) Covered Calls for Aug2011:
07/18/2011 Bought 1,000 EWT @ $14.65
07/19/2011 Sold 10 EWT Aug2011 $15.00 Calls @ $.31
Note: The price of EWT was $14.85 today when the options were sold.

EWT currently ranks 3rd in the Covered Calls Advisor's Country Value Rankings. With this purchase, the Covered Calls Advisor Portfolio (CCAP) now holds positions in each of the Top 5 ranked countries in these rankings [China(1st), Hong Kong(2nd), Taiwan(3rd), South Korea(4th), and Germany (5th)]. This is the first time that EWT has been purchased in the CCAP, largely because the implied volatility (IV) did not previously meet this advisor's minimum threshold of being at least 20% above the IV of the S&P500. But with the decline in EWT prices during the past 5 weeks, EWT's associated IV has now increased to a point where it does meet that threshold requirement, so a covered calls position was established today.

Two possible overall performance results(including commissions) for the EWT transactions would be as follows:
Stock Purchase Cost: $14,650.95
= ($14.65*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$293.55
= (1,000*$.31 - $16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $15.00): +$341.05
= ($15.00-$14.65)*1,000 - $8.95 commissions

Total Net Profit(If equity price unchanged at $14.65): +$284.60
= (+$293.55 +$0.00 -$8.95)
Total Net Profit(If ETF price assigned at $26.00): +$634.60
= (+$293.55 +$0.00 +$341.05)

Absolute Return if Unchanged at $14.65: +1.9%
= +$284.60/$14,650.95
Annualized Return If Unchanged (ARIU) +22.2%
= (+$284.60/$14,650.95)*(365/32 days)

Absolute Return if Assigned at $15.00: +4.3%
= +$634.60/$14,650.95
Annualized Return If Assigned (ARIA) +49.4%
= (+$634.60/$14,650.95)*(365/32 days)

The downside breakeven price at expiration is at $14.34 ($14.65 - $.31).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Aug2011 options expiration) for this iShares MSCI Taiwan ETF (EWT) covered calls position is 64.9%. This compares with a probability of profit of 51.2% for a buy-and-hold of iShares MSCI Taiwan ETF (EWT) over the same time period.

Establish iShares MSCI Germany ETF Covered Calls

2011-07-19T00:32:00.000-04:00

Yesterday, the Covered Calls Advisor established a new covered calls position in iShares MSCI Germany ETF (EWG). The photo on the right shows the bull and bear in front of the Frankfurt Stock Exchange in Germany.

Established iShares MSCI Germany ETF (EWG) Covered Calls for Sep2011:
07/18/2011 Bought 500 EWG @ $25.03
07/18/2011 Sold 5 EWG Sep2011 $26.00 Calls @ $.70
Note: The price of EWG was $25.06 when the options were sold.

EWG currently ranks 5th in the Covered Calls Advisor's Country Value Rankings. European stocks took another 1.5%+ decline in morning trading today as the European debt fears continued. The Covered Calls Advisor took that opportunity to establish a covered calls position in EWG, which provides a well-diversified exposure to the overall German stock market.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $12,523.95
= ($25.03*500+$8.95 commission)

Net Profit:
(a) Options Income: +$337.30
= (500*$.70 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $26.00): +$476.05
= ($26.00-$25.03)*500 - $8.95 commissions

Total Net Profit(If equity price unchanged at $25.03): +$328.35
= (+$337.30 +$0.00 -$8.95)
Total Net Profit(If ETF price assigned at $26.00): +$804.40
= (+$337.30 +$0.00 +$476.05)

Absolute Return if Unchanged at $25.03: +2.6%
= +$328.35/$12,523.95
Annualized Return If Unchanged (ARIU) +15.7%
= (+$328.35/$12,523.95)*(365/61 days)

Absolute Return if Assigned at $26.00: +6.4%
= +$804.40/$12,523.95
Annualized Return If Assigned (ARIA) +38.4%
= (+$804.40/$12,523.95)*(365/61 days)

Establish Freeport McMoRan Copper and Gold, Inc. Covered Calls

2011-07-18T22:51:00.006-04:00

The prior covered calls position in Freeport McMoRan Copper and Gold Inc.(FCX) with a Jul2011 expiration closed in-the-money upon options expiration last Friday and was therefore assigned. Today, the Covered Calls Advisor decided to re-establish a new covered calls position in Freeport McMoRan Copper and Gold with a one-week July 22, 2011 expiration as follows:

1. Freeport McMoRan Copper and Gold Inc.(FCX)
The transactions were as follows:
07/18/2011 Bought 200 FCX @ $54.95
07/18/2011 Sold 2 FCX Jul 22, 2011 $52.50 Calls @ $2.88
Note: The price of FCX was $54.98 when the options were sold.

FCX remains a value-oriented stock selection in the materials (primarily copper but also gold) sector. The Weekly options were selected because of the relatively high implied volatility in the options and thus the attractive option premiums they offer for a very short (4 trading days) time period. But it is possible that copper could experience a short-term price pull-back which might cause an accompanying decline in the price of FCX. So, because of this short duration, a more conservative in-the-money strike price of $52.50 was selected with the stock being purchased at $54.95 (as shown above).

A possible overall performance result(including commissions) for this FCX covered calls position would be as follows:
Stock Purchase Cost: $10,998.95
= ($54.95*200+$8.95 commission)

Net Profit:
(a) Options Income: +$565.55
= (200*$2.88 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $52.50): -498.95
= ($52.50-$54.95)*200 - $8.95 commissions

Total Net Profit(If FCX assigned at $52.50): +$66.60
= (+$565.55 +$0.00 -$498.95)

Absolute Return if Assigned at $52.50: +0.6%
= +$66.60/$10,998.95
Annualized Return If Assigned (ARIA) +55.3%
= (+$66.60/$10,998.95)*(365/4 days)

Sold 100% Cash-Secured Puts -- Mylan Inc.

2011-07-18T22:35:00.005-04:00

Today, the Covered Calls Advisor decided to establish a new 100% Cash-Secured Puts position in Mylan Inc. (MYL) with an Aug2011 expiration.

Mylan Inc. is a leading manufacturer of generic pharmaceutical products
in finished tablet, capsule and powder dosage forms. MYL markets more than 1,000 products throughout the world with sales from: North America 53%, Europe
33%, and Asia/Pacific 14%. Generics account for about 90% of total revenues, with specialty products representing the balance. As patents continue to expire over the next few years for many successful branded drugs, Mylan is well-positioned to capture a significant share of new generics which bodes well for its future growth rate.

1. Mylan Inc. (MYL) -- New Position
The transaction was as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.

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 five put options sold. Two possible overall performance results(including commissions) for the Mylan Inc. (MYL) transaction would be as follows:
100% Cash-Secured Cost Basis: $11,500.00
= $23.00*500

Net Profit:
(a) Options Income: +$517.30
= ($1.06*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $22.98 and thus stock assigned at $23.00 at expiration): -$18.95
= ($22.98-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MYL stock above $23.00 at Aug2011 expiration): -$8.95
= ($23.00-$23.00) -$8.95 commissions

Total Net Profit(If stock price unchanged at $22.98): +$498.35
= (+$517.30 +$0.00 -$18.95)
Total Net Profit(If stock price above $23.00 at Aug2011 options expiration): +$508.35
= (+$517.30 +$0.00 -$8.95)

Absolute Return if Unchanged at $22.98: +4.0%
= +$498.35/$11,500.00
Annualized Return If Unchanged (ARIU): +47.9%
= (+$498.35/$11,500.00)*(365/33 days)

Absolute Return (If stock price above $23.00 at Aug2011 options expiration and put options thus expire worthless): +4.4%
= +$508.35/$11,500.00
Annualized Return (If stock price above $23.00 at expiration): +48.9%
= (+$508.35/$11,500.00)*(365/33 days)

Sold Weekly 100% Cash-Secured Put Options -- Caterpillar Inc.

2011-07-18T21:27:00.004-04:00

Normally, the Covered Calls Advisor sells monthly options. Today, for the first time, weekly 100% cash-secured put options were sold in the Covered Calls Advisor Portfolio(CCAP). In this instance, the cash-secured put was selected primarily as an experiment to see if any additional insights are gleaned by comparing this weekly put option duration against the monthly duration this advisor is accustomed to. The primary reason Caterpillar Inc. was selected for this Weekly option was because of the relatively high implied volatility in the options and thus the attractive option premiums they offer for a very short (4 trading days) time period. An important reason for the very high volatility is the fact that quarterly earnings will be released this Friday. This advisor expects earnings to exceed analysts' expectations, so a bullish in-the-money ($110 strike price) July 22, 2011 put option was selected today when the stock was selling at $106.86.

As you might recall from this article (link), this advisor has a personal preference that favors covered calls over cash-secured puts, despite the synthetic equivalence of these two strategies if they are established at the same moment in time, at the same strike price, and for the same expiration date. Along with evaluating the pros and cons of the weekly options vis-a-vis the monthlies, the pros and cons of selling 100% cash-secured puts (in lieu of the traditional covered calls) will also be part of the overall evaluation of this position when this investment is completed.

1. Caterpillar Inc. (CAT) -- New Position
Today, two Caterpillar Inc. (CAT) 100% cash-secured put options were sold in the Covered Calls Advisor Portfolio. The transaction was as follows:

07/18/2011 Sold 2 Caterpillar Inc. (CAT) Aug2011 $110.00 Puts @ $4.30
Note: the price of CAT stock was $106.86 today when these puts were sold.

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 two put options sold. Two possible overall performance results(including commissions) for the Caterpillar Inc. (CAT) transaction would be as follows:
100% Cash-Secured Cost Basis: $22,000.00
= $110.00*200

Net Profit:
(a) Options Income: +$849.55
= ($4.30*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $106.86 and thus stock assigned at $110.00 at expiration): -$636.95
= ($106.86-$110.00)*200 - $8.95 commissions
(c) Capital Appreciation (If FCX stock above $110.00 at July 22,2011 expiration): -$8.95 = ($106.10-$106.10) -$8.95 commissions

Total Net Profit(If stock price unchanged at $106.86): +$212.60
= (+$849.55 +$0.00 -$636.95)
Total Net Profit(If stock price above $110.00 at July 22,2011 options expiration): +$840.60
= (+$849.55 +$0.00 -$8.95)

Absolute Return if Unchanged at $106.86: +1.0%
= +$212.60/$22,000.00
Annualized Return If Unchanged (ARIU): +88.2%
= (+$212.60/$22,000.00)*(365/4 days)

Absolute Return (If stock price above $110.00 at Jul 22, 2011 options expiration and put options thus expire worthless): +3.8%
= +$840.60/$22,000.00
Annualized Return (If stock price above $110.00 at expiration): +348.7%
= (+$840.60/$22,000.00)*(365/4 days)

As always, your comments or questions/clarifications regarding this post are welcomed. Please click on the "comments" link below. If you prefer to remain anonymous, email me at the address shown in the upper-right sidebar.

Jeff

Covered Calls Continuation Transactions

2011-07-18T20:38:00.002-04:00

Upon Jul2011 options expiration, seven covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for two equities (iShares MSCI China ETF and Petrobras ADR) with Aug2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. 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

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$1,531.90
= (1,000*($.49+$.37+$.71) - 3*$12.70 commissions)
(b) Distribution Income: $685.55 = $.68555 * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $41.08 at expiration): -$3,728.95
= ($41.08-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If FXI assigned at $42.00 at expiration): -$2,808.95
= ($42.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $41.08 at expiration): -$1,511.50
= (+$1,531.90 +$685.55 -$3,728.95)
Total Net Profit (If FXI assigned at $42.00): +20.40
= (+$1,531.90 +$685.55 -$2,197.05)

1. Absolute Return (If FXI unchanged at $41.08 at expiration): -3.4%
= -$1,511.50/$44,808.95
Annualized Return (If FXI unchanged at expiration): -9.9%
= (-$1,511.50/$44,808.95)*(365/124 days)

2. Absolute Return (If FXI assigned at $42.00 at expiration): +0.05%
= +$20.40/$44,808.95
Annualized Return If Assigned (ARIA): +0.13%
= (+$20.40/$44,808.95)*(365/124 days)

2. Petrobras ADR (PBR) -- Continuation
The transactions history to date for Petrobras ADR (PBR) is as follows:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 today when these options were sold.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/03/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.
12/07/2010 $41.42 Dividend = ($.138 Net Dividend x 300 shares)
12/18/2010 Dec2010 Options Expired
Note: The price of PBR was $34.08 upon Dec2010 options expiration.
12/21/2010 Sold 3 PBR Jan2011 $35.00 Calls @ $.59
Note: The price of PBR was $34.18 when these options were sold.
01/06/2011 $61.03 Dividend = ($.203 Net Dividend x 300 shares)
01/21/2011 Buy-to-Close (BTC) 3 PBR Jan2011 $35.00 Call Options @ $1.35
01/21/2011 Sell-to-Open (STO) 3 PBR Feb2011 $37.00 Call Options @ $.89
02/18/2011 Buy-to-Close (BTC) 3 PBR Feb2011 $37.00 Call Options @ $.85
02/18/2011 Sell-to-Open (STO) 3 PBR Mar2011 $37.00 Call Options @ $1.67
03/18/2011 Buy-to-Close (BTC) 3 PBR Mar2011 $37.00 Call Options @ $2.19
03/18/2011 Sell-to-Open (STO) 3 PBR Apr2011 $40.00 Call Options @ $1.01
Note: The price of PBR was $39.23 when these options were sold.
04/16/2011 Apr2011 PBR Options Expired.
Note: the price of PBR was $37.81 upon options expiration.
04/20/2011 Sold 3 PBR May2011 $38.00 Calls @ $.87
Note: the price of PBR was $37.51 when these call options were sold.
05/21/2011 May2011 Options Expired
Note: the price of PBR was $33.87 upon options expiration.
06/28/2011 Sold 3 PBR Jul2011 $33.00 Calls @ $.59
Note: price of PBR was $32.82 when these options were sold.
07/16/2011 Jul2011 PBR options expired.
07/18/2011 Sold 3 PBR Aug2011 $33.00 Calls @$.60

Two possible overall performance results (including commissions) for the Petrobras (PBR) transactions would be as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,583.20
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89-$.85+$1.67-$2.19+$1.01+$.87+$.59+$.60) - 14*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR price unchanged at $32.18): -$2,156.95
= ($32.18-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $33.00): -$1,910.95
= ($33.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR unchanged at $32.18): -$387.15
= (+$1,583.20 +$186.60 -$2,156.95)
Total Net Profit(If PBR assigned at $33.00): -$141.15
= (+$1,583.20 +$186.60 -$1,910.95)

1. Absolute Return (If Unchanged at $32.18): -3.3%
= -$387.15/$11,810.95
Annualized Return If Unchanged (ARIU): -2.8%
= (-$387.15/$11,810.95)*(365/425 days)

2. Absolute Return (If Assigned at $33.00): -1.2%
= -$141.15/$11,810.95
Annualized Return If Assigned(ARIA): -1.0%
= (-$141.15/$11,810.95)*(365/425 days)

Establish iShares MSCI South Korea ETF Covered Calls

2011-07-18T11:17:00.005-04:00

The prior covered calls position in EWY with a Jul2011 expiration was called in-the-money upon options expiration last Friday and was therefore assigned. Today, the Covered Calls Advisor decided to re-establish a new covered calls position in iShares MSCI South Korea ETF (EWY) with an Aug2011 expiration as follows:

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Aug2011:
07/18/2011 Bought 500 EWY @ $64.76
07/18/2011 Sold 5 EWY Aug2011 $66.00 Calls @ $1.45
Note: The price of EWY was $64.80 when the options were sold.

EWY remains a good investment vehicle for capturing widespread exposure to the diversified South Korean economy and its stock market through a single equity. South Korea is a good value-oriented investment since some traditional value metrics such as P/E and P/Book are significantly less than those of the U.S., while the expectation for GDP growth with relatively modest inflation for 2011 also favors South Korea. In addition, South Korea currently ranks 4th in the Covered Calls Advisor's Country Value Rankings.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $32,388.95
= ($64.76*500+$8.95 commission)

Net Profit:
(a) Options Income: +$712.30
= (500*$1.45 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If equity price unchanged at $64.76):
-$8.95 = ($64.76-$64.76)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $66.00): +$611.05
= ($66.00-$64.76)*500 - $8.95 commissions

Total Net Profit(If equity price unchanged at $64.76): +$703.35
= (+$712.30 +$0.00 -$8.95)
Total Net Profit(If ETF price assigned at $66.00): +$1,323.35
= (+$712.30 +$0.00 +$611.05)

Absolute Return if Unchanged at $64.76: +2.2%
= +$703.35/$32,388.95
Annualized Return If Unchanged (ARIU) +24.0%
= (+$703.35/$32,388.95)*(365/33 days)

Absolute Return if Assigned at $66.00: +4.1%
= +$1,323.35/$32,388.95
Annualized Return If Assigned (ARIA) +45.2%
= (+$1,323.35/$32,388.95)*(365/33 days)

July 2011 Expiration Results

2011-07-17T15:45:00.004-04:00

The Covered Calls Advisor Portfolio (CCAP) contained a total of eleven covered calls positions with July 2011 expirations, with the following results:

- One Jul2011 covered calls position in Microsoft Corp.(MSFT) was in-the-money late this past week and was rolled-up-and-out to an Aug2011 covered calls position. These transactions were reported on this blog on Thursday when they occurred.

- Seven covered calls positions in the CCAP (China Mobile Ltd., International Paper, iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Morgan Stanley, Petrobras, and ProShares UltraShort 20+ Year Treasury ETF) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish August 2011 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.

- Three covered calls positions (Apple Inc., Freeport McMoran Copper and Gold Inc., and iShares MSCI South Korea ETF) were in-the-money and were called away upon option expiration last Friday. The annualized return on investment results for these covered calls were:
- Apple Inc. -- +31.8%
- Freeport McMoRan Copper and Gold, Inc. -- +20.7%
- iShares MSCI South Korea ETF -- +16.9%
The detailed history for these positions are provided below.

1. Apple Inc.(AAPL) -- Closed
The transactions history is as follows:
12/20/2010 Bought 100 AAPL @ $321.10
12/21/2010 Sold 1 AAPL Jan2011 $330.00 Call @ $6.10
Note: The call option was sold today when the AAPL stock was trading at $324.10.
01/22/2011 Jan2011 AAPL options expired
Note: The price of AAPL was $326.72 at closing on expiration Friday.
01/24/2011 Sold 1 AAPL Feb2011 $340.00 Call @ $5.50
Note: The price of AAPL was $333.72 when this Call option was sold.
02/19/2011 Feb2011 AAPL options expired
02/28/2011 Sold 1 AAPL Apr2011 $360.00 Call @ $10.80
Note: The price of AAPL was $354.32 when this Call option was sold.
04/16/2011 Apr2011 AAPL options expired.
04/26/2011 Sold 1 AAPL May2011 $350.00 Call @ $8.95
Note: The price of AAPL was $353.06 when this call option was sold.
05/31/2011 Sold 1 AAPL Jun2011 $360.00 Call @ $.90
Note: The price of AAPL was $343.63 when this call option was sold.
06/18/2011 Jun2011 Options Expired
Note: the price of AAPL was $320.26 upon options expiration.
06/28/2011 Sold 1 AAPL Jul2011 $345.00 Call Option @ $2.77
Note: price of AAPL stock was $335.75 when this option was sold.
07/16/2011 Jul2011 AAPL Options Expired.
Note: the price of AAPL was $364.92 upon options expiration.

The resulting overall performance (including commissions) for these Apple Inc.(AAPL) transactions was as follows:
Stock Purchase Cost: $32,118.95
= ($321.10*100+$8.95 commission)

Net Profit:
(a) Options Income: +$3,443.80
= [100*($6.10+$5.50+$10.80+$8.95+$.90+$2.77) - 6*$9.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $345.00): +$2,381.05
= ($345.00-$321.10)*100 - $8.95 commissions

Total Net Profit(Stock assigned at $345.00): +$5,824.85
= (+$3,443.80 +$0.00 +$2,381.05)

Absolute Return (Stock Assigned at $345.00): +18.1%
= +$5,824.85/$32,118.95
Annualized Return: +31.8%
= (+$5,824.85/$32,118.95)*(365/208 days)

2. Freeport McMoRan Copper and Gold Inc.(FCX) -- Closed
The transactions history was as follows:
01/28/2011 Sold 3 Freeport-McMoRan Copper and Gold Inc.(FCX) Feb2011 $110.00 Puts @ $6.35
Note: the price of FCX stock was $106.10 when these puts were sold.
The 100% cash-secured put position in Freeport McMoRan (FCX) ended out-of-the-money and was assigned for purchase. The stock underwent a 2-for-1 split since original sale of the three FCX puts at $110.00 strike price. So the assignment was for the purchase of 600 shares of FCX stock at half of the the original $110 strike price value which is $55.00.
03/17/2011 Sold 6 FCX Apr2011 $55.00 Calls @ $1.43
Note: The price of FCX was $52.15 when these call options were sold.
04/16/2011 Apr2011 FCX Options Expired.
Note: the price of FCX was $51.17 upon options expiration.
04/20/2011 Sold 6 FCX May2011 $55.00 Calls @ $1.95
Note: the price of FCX was $54.73 when these call options were sold.
05/11/2011 $150.00 Ex-Dividend ($.250 per share * 600 shares)
05/15/2011 Supplementary Dividend ($.50 per share) for shares of record on 5/15/2011.
05/21/2011 May2011 Options Expiration Date
05/27/2011 Sold 6 FCX Jun2011 $55.00 Calls @ $.44
Note: the price of FCX was $51.60 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of FCX was $47.93 upon options expiration.
06/21/2011 Sold 6 FCX Jul2011 $52.50 Calls @ $.52
Note: price of FCX stock was $49.16 when these options were sold.
07/16/2011 Jul2011 FCX Options Expired.
Note: the price of FCX was $55.34 upon options expiration.

The resulting overall performance (including commissions) for these Freeport-McMoRan Copper and Gold Inc.(FCX) transactions was as follows:
Stock Purchase Cost: $33,008.95
= ($110.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$4,219.85
= [300*$6.35 + 600*($1.43+$1.95+$.44+$.52) - 3*$11.20 - 4*$13.45 commissions]
(b) Dividend Income: +$450.00 [($.50 + $.25) * 600 shares]
(c) Capital Appreciation (Stock assigned at $52.50): -$1,508.95
= ($52.50-$55.00)*600 - $8.95 commissions

Total Net Profit(Stock assigned at $52.50): +$3,160.90
= (+$4,219.85 +$450.00 -$1,508.95)

Absolute Return (Stock Assigned at $52.50): +9.6%
= +$3,160.90/$33,008.95
Annualized Return: +20.7%
= (+$3,160.90/$33,008.95)*(365/169 days)

3. iShares MSCI South Korea ETF (EWY) -- Closed
The transactions history was as follows:
04/18/2011 Bought 600 EWY @ $64.17
04/19/2011 Sold 6 EWY May2011 $66.00 Calls @ $1.39
Note: the price of EWY was $65.20 when the calls were sold.
05/27/2011 Sold 6 EWY Jun2011 $67.00 Calls @ $.59
Note: the price of EWY was $64.84 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EWY was $61.91 upon options expiration.
06/21/2011 Sold 6 EWY Jul2011 $65.00 Calls @ $.59
Note: price of EWY stock was $63.00 when these options were sold.
07/16/2011 Jul2011 EWY Options Expired.
Note: the price of EWY was $65.62 upon options expiration.

The resulting overall performance (including commissions) for these iShares MSCI South Korea ETF (EWY) transactions was as follows:
Stock Purchase Cost: $38,510.95
= ($64.17*600+$8.95 commission)

Net Profit:
(a) Options Income: +$1,501.65
= [600*($1.39+$.59+$.59) - 3*$13.45 commissions]
(b) Dividend Income: $0.00
(c) Capital Appreciation (Stock assigned at $65.00): +$87.05
= ($65.00-$64.84)*600 - $8.95 commissions

Total Net Profit (If stock assigned at $65.00): +$1,588.70
= (+$1,501.65 +$0.00 +$87.05)

Absolute Return (Stock assigned at $65.00 at expiration): +4.1%
= +$1,588.70/$38,510.95
Annualized Return: +16.9%
= (+$1,588.70/$38,510.95)*(365/89 days)

Roll Up and Out -- Microsoft Corp.(MSFT)

2011-07-14T15:36:00.005-04:00

Tomorrow is July 2011 options expiration Friday. With Microsoft (MSFT) trading at $26.49, the seven MSFT Jul2011 $26.00 calls were in-the-money. The Covered Calls Advisor decided to retain the Microsoft position and roll-up-and-out to the Aug2011 expiration at the $27.00 strike price. The seven Jul2011 $26.00 calls were bought back for $.50 (only $.01 of time value remaining in each call option) and replaced by selling seven out-of-the-money Aug2011 $27.00 strike options at $.56 as follows:
07/14/2011 Buy-to-Close (BTC) 7 MSFT Jul2011 $26.00 Call Options @ $.50
07/14/2011 Sell-to-Open (STO) 7 MSFT Aug2011 $27.00 Call Options @ $.56

The overall transactions history as well as two possible return-on-investment results are detailed below:

1. Microsoft Corp.(MSFT) -- Continuation Transaction
The transactions history to date for Microsoft Corp.(MSFT) is as follows:
01/24/2011 Bought 700 MSFT @ $28.15
02/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
01/24/2011 Sell-to-Open(STO) 7 MSFT Feb2011 $29.00 CallS @ $.40
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 7 MSFT Apr2011 $26.00 Calls @ $.31
Note: the price of MSFT was $25.47 today when the options were sold.
04/16/2011 Apr2011 MSFT options expired.
04/26/2011 Sold 7 MSFT May2011 $26.00 Calls @ $.66
Note: The price of MSFT was $26.06 when these call options were sold.
05/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
05/31/2011 Sold 7 MSFT Jul2011 $26.00 Calls @ $.29
Note: The price of MSFT was $25.05 when these call options were sold.
07/14/2011 Buy-to-Close (BTC) 7 MSFT Jul2011 $26.00 Call Options @ $.50
07/14/2011 Sell-to-Open (STO) 7 MSFT Aug2011 $27.00 Call Options @ $.56
Note: The price of MSFT was $26.52 when these call options were sold.
08/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $19,713.95
= ($28.15*700+$8.95 commission)

Net Profit:
(a) Options Income: +$1,133.00
= 700*($.40+$.31+$.66+$.29-$.50+$.56) - 5*$14.20 commissions)
(b) Dividend Income: +$336.00 ($.16/share * 700 shares * 3 payments)
(c) Capital Appreciation (If stock price unchanged at $26.52): -$1,149.95
= ($26.52-$28.15)*700 - $8.95 commissions
(c) Capital Appreciation (If assigned at $26.00): -$813.95
= ($27.00-$28.15)*700 - $8.95 commissions

Total Net Profit(If stock price unchanged at $26.52): +$319.05
= (+$1,133.00 +$336.00 -$1,149.95)
Total Net Profit(If stock assigned at $27.00): +$655.05
= (+$1,133.00 +$336.00 -$813.95)

Absolute Return if Stock Unchanged at $26.52: +1.6%
= +$319.05/$19,713.95
Annualized Return If Unchanged (ARIU): +2.8%
= (+$319.05/$19,713.95)*(365/208 days)

Absolute Return if Assigned at $27.00: +3.3%
= +$655.05/$19,713.95
Annualized Return If Assigned (ARIA): +5.8%
= (+$655.05/$19,713.95)*(365/208 days)

Overall Market Meter Rating Remains "Slightly Bullish"

2011-07-12T08:48:00.001-04:00

Returns -- Through June 2011

2011-06-30T19:38:00.005-04:00

1. June 2011 Year-to-Date Results:

As shown in the chart below, the Covered Calls Advisor Portfolio (CCAP) has increased by +5.12% over the first six months of calendar year 2011. This performance compares with an increase of +5.79% for the benchmark Russell 3000 index for the comparable first half of calendar year 2011.

CCAP Absolute Return (Jan 1st through June 30th, 2011) = +5.12%
($302,171.32-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through June 30th, 2011) = +5.79%($79.29-$74.95)/$74.95

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark were as follows:

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.

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. As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating remains "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

Covered Calls Continuation Transactions

2011-06-28T15:19:00.006-04:00

Today, a decision was made to retain the shares held in the remaining four positions in the Covered Calls Advisor Portfolio(CCAP): Best Buy Corp.Inc.(BBY), iShares MSCI Emerging Markets ETF(EEM), Petrobras ADR (PBR), and ProShares UltraShort 20+ Year Treasury ETF (TBT). The detailed transactions for each holding as well as some possible results for these investment are as follows:

1. Best Buy Corp. Inc.(BBY) -- Continuation
The transactions history is as follows:
01/24/2011 Bought 300 BBY @ $35.13
01/24/2011 Sell-to-Open(STO) 3 BBY Feb2011 $36.00 Calls @ $.57
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 3 BBY Apr2011 $34.00 Calls @ $.49
Note: the price of BBY was $31.92 today when the options were sold.
04/16/2011 Apr2011 BBY options expired.
04/26/2011 Sold 3 BBY May2011 $31.00 Calls @ $.60
Note: The price of BBY was $30.59 when these call options were sold.
05/20/2011 Bought-to-Close(BTC) 3 BBY May3011 $31.00 Calls @ $.36
Note: The price of BBY was $31.31 when the options were bought back.
05/20/2011 Sell-to-Open(STO) 3 BBY Jun2011 $32.00 Calls @ $.94
Note: The price of BBY was $31.43 when these options were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of BBY was $31.01 upon options expiration.
06/28/2011 Sold 3 BBY Aug2011 $33.00 Calls @ $.83
Note: price of BBY stock was $31.90 when these options were sold.

Two possible overall performance results(including commissions) for the Best Buy Corp.(BBY) transactions would be as follows:
Stock Purchase Cost: $10,547.95
= ($35.13*300+$8.95 commission)

Net Profit:
(a) Options Income: +$853.80
= (300*($.57+$.49+$.60-$.36+$.94+$.83) - 6*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $31.90):
-$977.95 = ($31.90-$35.13)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $33.00): -$647.95
= ($33.00-$35.13)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $31.90): -$124.15
= (+$853.80 +$0.00 -$977.95)
Total Net Profit(If stock assigned at $33.00): +$205.85
= (+$853.80 +$0.00 -$647.95)

1. Absolute Return if Unchanged at $31.90: -1.2%
= -$124.15/$10,547.95
Annualized Return If Unchanged (ARIU): -2.1%
= (-$124.15/$10,547.95)*(365/208 days)

2. Absolute Return if Assigned at $33.00: +2.0%
= +$205.85/$10,547.95
Annualized Return If Assigned (ARIA): +3.4%
= (+$205.85/$10,547.95)*(365/208 days)

2. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$861.90
= [500*($.83 +$.35+$.62) - 3*$12.70 commissions]
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $46.42 at expiration): -$703.95
= ($46.42-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): -$413.95
= ($47.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at $46.42 at expiration): +$157.95
= (+$861.90 +$0.00 -$703.95)
Total Net Profit (If stock assigned at $47.00): +$447.95
= (+$861.90 +$0.00 -$413.95)

1. Absolute Return (If stock unchanged at $46.42 at expiration): +0.7%
= +$157.95/$23,913.95
Annualized Return (If stock unchanged at expiration): +2.7%
= (+$157.95/$23,913.95)*(365/89 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +1.9%
= +$447.95/$23,913.95
Annualized Return (If stock assigned at $49.00): +7.7%
= (+$447.95/$23,913.95)*(365/89 days)

3. Petrobras ADR (PBR) -- Continuation
The transactions history to date for Petrobras ADR (PBR) is as follows:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 today when these options were sold.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/03/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.
12/07/2010 $41.42 Dividend = ($.138 Net Dividend x 300 shares)
12/18/2010 Dec2010 Options Expired
Note: The price of PBR was $34.08 upon Dec2010 options expiration.
12/21/2010 Sold 3 PBR Jan2011 $35.00 Calls @ $.59
Note: The price of PBR was $34.18 when these options were sold.
01/06/2011 $61.03 Dividend = ($.203 Net Dividend x 300 shares)
01/21/2011 Buy-to-Close (BTC) 3 PBR Jan2011 $35.00 Call Options @ $1.35
01/21/2011 Sell-to-Open (STO) 3 PBR Feb2011 $37.00 Call Options @ $.89
02/18/2011 Buy-to-Close (BTC) 3 PBR Feb2011 $37.00 Call Options @ $.85
02/18/2011 Sell-to-Open (STO) 3 PBR Mar2011 $37.00 Call Options @ $1.67
03/18/2011 Buy-to-Close (BTC) 3 PBR Mar2011 $37.00 Call Options @ $2.19
03/18/2011 Sell-to-Open (STO) 3 PBR Apr2011 $40.00 Call Options @ $1.01
Note: The price of PBR was $39.23 when these options were sold.
04/16/2011 Apr2011 PBR Options Expired.
Note: the price of PBR was $37.81 upon options expiration.
04/20/2011 Sold 3 PBR May2011 $38.00 Calls @ $.87
Note: the price of PBR was $37.51 when these call options were sold.
05/21/2011 May2011 Options Expired
Note: the price of PBR was $33.87 upon options expiration.
06/28/2011 Sold 3 PBR Jul2011 $33.00 Calls @ $.59
Note: price of PBR was $32.82 when these options were sold.

Two possible overall performance results (including commissions) for the Petrobras (PBR) transactions would be as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,414.40
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89-$.85+$1.67-$2.19+$1.01+$.87+$.59) - 13*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR price unchanged at $32.82): -$1,964.95
= ($32.82-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $33.00): -$1,910.95
= ($33.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR unchanged at $32.82): -$363.95
= (+$1,414.40 +$186.60 -$1,964.95)
Total Net Profit(If PBR assigned at $33.00): -$309.95
= (+$1,414.40 +$186.60 -$1,910.95)

Absolute Return (If Unchanged at $32.82): -3.1%
= -$363.95/$11,810.95
Annualized Return If Unchanged (ARIU): -2.9%
= (-$363.95/$11,810.95)*(365/390 days)

Absolute Return (If Assigned at $33.00): -2.6%
= -$309.95/$11,810.95
Annualized Return If Assigned(ARIA): -2.5%
= ($309.95/$11,810.95)*(365/390 days)

4. ProShares UltraShort 20+ Year Treasury ETF (TBT)-- Continuation
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.

Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$204.10
= 200*($.36+$.39) - 2*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $33.94):
-$548.95 = ($33.94-$35.75)*300 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $35.00): -$233.95
= ($35.00-$35.75)*300 - $8.95 commissions

Total Net Profit(If TBT unchanged at $33.94): -$344.85
= (+$204.10 +$0.00 -$548.95)
Total Net Profit(If TBT exercised at $35.00): -$29.85
= (+$204.10 +$0.00 -$233.95)

Absolute Return if Unchanged at $33.94: -4.8%
= -$344.85/$7,158.95
Annualized Return If Unchanged (ARIU) -23.4%
= (-$344.85/$7,158.95)*(365/75 days)

Absolute Return if Assigned at $35.00: -0.4%
= -$29.85/$7,158.95
Annualized Return If Assigned (ARIA) -2.0%
= ($29.85/$7,158.95)*(365/75 days)

Covered Call Continuation Transaction -- Apple Inc.(AAPL)

2011-06-28T09:45:00.004-04:00

The Jun2011 covered calls position in Apple Inc.(AAPL) expired. Today, a decision was made to retain the 100 shares in Apple Inc. in the Covered Calls Advisor Portfolio and to re-establish a covered calls position with a Jul2011 expiration and at the $345.00 strike price. The detailed transactions history for this Apple Inc. position as well as possible results for this investment are as follows:

1. Apple Inc.(AAPL) -- Continuation
The transactions history is as follows:
12/20/2010 Bought 100 AAPL @ $321.10
12/21/2010 Sold 1 AAPL Jan2011 $330.00 Call @ $6.10
Note: The call option was sold today when the AAPL stock was trading at $324.10.
01/22/2011 Jan2011 AAPL options expired
Note: The price of AAPL was $326.72 at closing on expiration Friday.
01/24/2011 Sold 1 AAPL Feb2011 $340.00 Call @ $5.50
Note: The price of AAPL was $333.72 when this Call option was sold.
02/19/2011 Feb2011 AAPL options expired
02/28/2011 Sold 1 AAPL Apr2011 $360.00 Call @ $10.80
Note: The price of AAPL was $354.32 when this Call option was sold.
04/16/2011 Apr2011 AAPL options expired.
04/26/2011 Sold 1 AAPL May2011 $350.00 Call @ $8.95
Note: The price of AAPL was $353.06 when this call option was sold.
05/31/2011 Sold 1 AAPL Jun2011 $360.00 Call @ $.90
Note: The price of AAPL was $343.63 when this call option was sold.
06/18/2011 Jun2011 Options Expired
Note: the price of AAPL was $320.26 upon options expiration.
06/28/2011 Sold 1 AAPL Jul2011 $345.00 Call Option @ $2.77
Note: price of AAPL stock was $335.75 when this option was sold.

Two possible overall performance results(including commissions) for the Apple Inc.(AAPL) transactions would be as follows:
Stock Purchase Cost: $32,118.95
= ($321.10*100+$8.95 commission)

Net Profit:
(a) Options Income: +$3,443.80
= [100*($6.10+$5.50+$10.80+$8.95+$.90+$2.77) - 6*$9.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $335.75): +$1,451.05
= ($335.70-$321.10)*100 - $8.95 commissions
(c) Capital Appreciation (If assigned at $345.00): +$2,381.05
= ($345.00-$321.10)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $335.75): +$4,894.85
= (+$3,443.80 +$0.00 +$1,451.05)
Total Net Profit(If stock assigned at $345.00): +$5,824.85
= (+$3,443.80 +$0.00 +$2,381.05)

Absolute Return if Unchanged at $335.75: +15.2%
= +$4,894.85/$32,118.95
Annualized Return If Unchanged (ARIU): +26.7%
= (+$4,894.85/$32,118.95)*(365/208 days)

Absolute Return if Assigned at $345.00: +18.1%
= +$5,824.85/$32,118.95
Annualized Return If Assigned (ARIA): +31.8%
= (+$5,824.85/$32,118.95)*(365/208 days)

Covered Calls Continuation Transactions

2011-06-21T16:03:00.005-04:00

Upon Jun2011 options expiration, six covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for three equities (International Paper Co., Freeport McMoRan Copper and Gold Inc., and iShares MSCI South Korea ETF) with Jul2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
05/17/2011 Bought 500 IP @ $31.26
05/17/2011 Sold 5 IP Jun2011 $32.00 Calls @ $.82
06/18/2011 Jun2011 Options Expired
Note: the price of IP was $26.57 upon options expiration.
06/21/2011 Sold 5 IP Jul2011 $30.00 Calls @ $.38
Note: price of IP stock was $28.56 when these options were sold.

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $15,638.95
= ($31.26*500+$8.95 commission)

Net Profit:
(a) Options Income: +$574.60
= (500*($.82+$.38) - 2*$12.70 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $28.56 at expiration): -$1,358.95
= ($28.56-$31.26)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $30.00): -$638.95
= ($30.00-$31.26)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at $28.56 at expiration): -$784.35
= (+$574.60 +$0.00 -$1,358.95)
Total Net Profit (If stock assigned at $30.00): -$64.35
= (+$574.60 +$0.00 -$638.95)

1. Absolute Return (If stock unchanged at $28.56 at expiration): -5.0%
= -$784.35/$15,638.95
Annualized Return (If stock unchanged at expiration): -30.5%
= (-$784.35/$15,638.95)*(365/60 days)

2. Absolute Return (If stock assigned at $30.00 at expiration): -0.4%
= -$64.35/$15,638.95
Annualized Return (If stock assigned at $30.00): -2.5%
= (-$64.35/$15,638.95)*(365/60 days)

2. Freeport McMoRan Copper and Gold Inc.(FCX) -- Continuation
The transactions history is as follows:
01/28/2011 Sold 3 Freeport-McMoRan Copper and Gold Inc.(FCX) Feb2011 $110.00 Puts @ $6.35
Note: the price of FCX stock was $106.10 when these puts were sold.
The 100% cash-secured put position in Freeport McMoRan (FCX) ended out-of-the-money and was assigned for purchase. The stock underwent a 2-for-1 split since original sale of the three FCX puts at $110.00 strike price. So the assignment was for the purchase of 600 shares of FCX stock at half of the the original $110 strike price value which is $55.00.
03/17/2011 Sold 6 FCX Apr2011 $55.00 Calls @ $1.43
Note: The price of FCX was $52.15 when these call options were sold.
04/16/2011 Apr2011 FCX Options Expired.
Note: the price of FCX was $51.17 upon options expiration.
04/20/2011 Sold 6 FCX May2011 $55.00 Calls @ $1.95
Note: the price of FCX was $54.73 when these call options were sold.
05/11/2011 $150.00 Ex-Dividend ($.250 per share * 600 shares)
05/15/2011 Supplementary Dividend ($.50 per share) for shares of record on 5/15/2011.
05/21/2011 May2011 Options Expiration Date
05/27/2011 Sold 6 FCX Jun2011 $55.00 Calls @ $.44
Note: the price of FCX was $51.60 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of FCX was $47.93 upon options expiration.
06/21/2011 Sold 6 FCX Jul2011 $52.50 Calls @ $.52
Note: price of FCX stock was $49.16 when these options were sold.

Two possible overall performance results(including commissions) for the Freeport-McMoRan Copper and Gold Inc.(FCX) transactions would be as follows:
Stock Purchase Cost: $33,008.95
= ($110.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$4,219.85
= [300*$6.35 + 600*($1.43+$1.95+$.44+$.52) - 3*$11.20 - 4*$13.45 commissions]
(b) Dividend Income: +$450.00 [($.50 + $.25) * 600 shares]
(c) Capital Appreciation (If stock price unchanged at $49.16):
-$3,512.95 = ($49.16-$55.00)*600 - $8.95 commissions
(c) Capital Appreciation (If assigned at $52.50): -$1,508.95
= ($52.50-$55.00)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $49.16): +$1,156.90
= (+$4,219.85 +$450.00 -$3,512.95)
Total Net Profit(If stock assigned at $52.50): +$3,160.90
= (+$4,219.85 +$450.00 -$1,508.95)

Absolute Return if Unchanged at $49.16: +3.5%
= +$1,156.90/$33,008.95
Annualized Return If Unchanged (ARIU): +7.7%
= (+$1,156.90/$33,008.95)*(365/169 days)

Absolute Return if Assigned at $52.50: +9.6%
= +$3,160.90/$33,008.95
Annualized Return If Assigned (ARIA): +20.7%
= (+$3,160.90/$33,008.95)*(365/169 days)

3. iShares MSCI South Korea ETF (EWY) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 600 EWY @ $64.17
04/19/2011 Sold 6 EWY May2011 $66.00 Calls @ $1.39
Note: the price of EWY was $65.20 when the calls were sold.
05/27/2011 Sold 6 EWY Jun2011 $67.00 Calls @ $.59
Note: the price of EWY was $64.84 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EWY was $61.91 upon options expiration.
06/21/2011 Sold 6 EWY Jul2011 $65.00 Calls @ $.59
Note: price of EWY stock was $63.00 when these options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI South Korea ETF (EWY) transactions would be as follows:
Stock Purchase Cost: $38,510.95
= ($64.17*600+$8.95 commission)

Net Profit:
(a) Options Income: +$1,501.65
= [600*($1.39+$.59+$.59) - 3*$13.45 commissions]
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $63.00 at expiration): -$710.95
= ($63.00-$64.17)*600 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $65.00): +$87.05
= ($65.00-$64.84)*600 - $8.95 commissions

Total Net Profit (If stock price unchanged AT $63.00 at expiration): +$790.70
= (+$1,501.65 +$0.00 -$710.95)
Total Net Profit (If stock assigned at $65.00): +$1,588.70
= (+$1,501.65 +$0.00 +$87.05)

1. Absolute Return (If stock unchanged at $63.00 at expiration): +2.1%
= +$790.70/$38,510.95
Annualized Return (If stock unchanged at expiration): +8.4%
= (+$790.70/$38,510.95)*(365/89 days)

2. Absolute Return (If stock assigned at $65.00 at expiration): +4.1%
= +$1,588.70/$38,510.95
Annualized Return (If stock assigned at $65.00): +16.9%
= (+$1,588.70/$38,510.95)*(365/89 days)

June 2011 Expiration Results

2011-06-20T08:46:00.004-04:00

The Covered Calls Advisor Portfolio (CCAP) contained a total of seven covered calls positions with June 2011 expirations, with the following results:

- Six covered calls positions in the CCAP (Apple Inc., Best Buy Corp., Freeport McMoRan Copper and Gold Inc., International Paper, iShares MSCI Emerging Markets ETF, and iShares MSCI South Korea ETF) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish July 2011 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.

- The three options in the covered calls position in UnitedHealth Group Inc.(UNH) were called away upon option expiration last Friday. Three Jun2011 $50.00 options were exercised despite the fact that UNH closed on Friday at $49.96, slightly below the $50.00 strike price. The detailed results for this position is as follows:

1. UnitedHealth Group Inc.(UNH) -- Closed
The transactions history is as follows:
04/18/2011 Bought 300 UNH @ $43.97
04/20/2011 Sell-to-Open(STO) 3 UNH May2011 $45.00 CallS @ $1.03
Note: the price of UNH was $44.60 when the call options were sold.
05/20/2011 Bought-to-Close(BTC) 3 UNH May3011 $45.00 Calls @ $5.05
Note: The price of UNH was $50.08 when the options were bought back.
05/20/2011 Sell-to-Open(STO) 3 UNH Jun2011 $50.00 Calls @ $1.43
Note: The price of UNH was $50.28 when these options were sold.
06/18/2011 Jun2011 UNH Options Expired.
Note: the price of UNH was $49.96 upon options expiration.

A resulting overall performance (including commissions) for these UnitedHealth Group Inc.(UNH) transactions was as follows:
Stock Purchase Cost: $13,199.95
= ($43.97*300+$8.95 commission)

Net Profit:
(a) Options Income: -$810.60
= (300*($1.03-$5.05+$1.43) - 3*$11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (Stock assigned at $50.00): +$1,800.05
= ($50.00-$43.97)*300 - $8.95 commissions

Total Net Profit (Stock assigned at $50.00): +$989.45
= (-$810.60 +$0.00 +$1,800.05)

Absolute Return (Stock assigned at $50.00 at expiration): +7.5%
= +$989.45/$13,199.95
Annualized Return: +44.9%
= (+$989.45/$13,199.95)*(365/61 days)

Overall Market Meter Rating Remains "Slightly Bullish"

2011-06-16T08:57:00.005-04:00

Each month during options expiration week, the Covered Calls Advisor re-calculates each of the current values for the nine factors used to determine the "Overall Market Meter" rating. These nine factors can be categorized into macroeconomic (the first 3 indicators in the chart below), momentum (next 2 indicators in the chart), value (next 3 indicators), and growth (the last indicator). As shown in the chart below, the new Overall Market Meter Average rating (blue bar at the bottom of the chart) remains unchanged at "Slightly Bullish":

The current Market Meter Average of 4.11 is identical to the 4.11 of last month and as such remains solidly in Slightly Bullish territory (Note: the range for Slightly Bullish is from 3.5 to 4.5) for establishing covered calls investing positions for the next options expiration month of July 2011. All nine of the factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month.

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 June 2011 options expiration this week, newly established positions for July 2011 expiration will be established in accordance with this guideline.

In the field of behavioral finance, there is substantial academic research on cognitive biases. As investors, our emotional feelings about the current state of the stock market tends to fluctuate daily with the ups and downs of the market and also with the bullish and bearish investing-related information we read. A prior blog post describing my investing process states: "The greatest benefit of a well-defined, detailed investing process is that it enables us to be objective in our decision-making and to therefore counteract the negative impact that often occurs if we allow our emotions to influence our decisions. I am convinced that emotionally-driven decisions are the primary culprit that causes investors to often buy high (often accompanied by greed) and sell low (often accompanied by fear), the exact opposite of what they had intended to do." So, the Covered Calls Advisor attempts to replace emotional decision-making with objective decision-making wherevever possible. The 9-factor Overall Market Meter accomplishes this very nicely. Plug in the current numbers for each factor and the current resulting Overall Market Meter rating is automatically calculated. The specific factors that make up the model are occasionally updated (tweaked if you will) as new and better forecasting information is obtained. The Overall Market Meter model itself is, of course, not perfect. But generally speaking, I am pleased with it, and I love the fact that it removes the emotional roller coaster effect that each of us investors are prone to be adversely affected by.

Your comments or questions regarding this post (or the details related to any of the nine 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

Establish Morgan Stanley Covered Calls

2011-06-03T10:24:00.006-04:00

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 Jul2011:
06/03/2011 Bought 300 MS @ $22.988
06/03/2011 Sold 3 MS Jul2011 $25.00 Calls @ $.26
Note: the price of MS was $23.14 when the call options were sold.

Today, Morgan Stanley is trading at less than 80% of this year's expected tangible book value. The prior 10-year chart below shows that it is now priced at about 62% of book value per share versus a historical norm well above 100%.

With Morgan Stanley's primary financial metrics now improving, the stock's downside risk seems minimal and its upside potential for the next year is estimated to be 50% above its current price ($34.50 target price).

Two possible overall performance results(including commissions) for the Morgan Stanley transactions would be as follows:
Stock Purchase Cost: $6,905.35
= ($22.988*300+$8.95 commission)

Net Profit:
(a) Options Income: +$66.80
= 300*$.26 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MS unchanged at $22.988):
-$8.95 = ($22.988-$22.988)*300 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $25.00): +$594.65
= ($25.00-$22.988)*300 - $8.95 commissions

Total Net Profit(If MS unchanged at $22.988): +$57.85
= (+$66.80 +$0.00 -$8.95)
Total Net Profit(If MS exercised at $25.00): +$661.45
= (+$66.80 +$0.00 +$594.65)

Absolute Return if Unchanged at $22.988: +0.8%
= +$57.85/$6,905.35
Annualized Return If Unchanged (ARIU) +7.1%
= (+$57.85/$6,905.35)*(365/43 days)

Absolute Return if Assigned at $37.00: +9.6%
= +$661.45/$6,905.35
Annualized Return If Assigned (ARIA) +81.3%
= (+$661.45/$6,905.35)*(365/43 days)

The downside breakeven price at expiration is at $22.73 ($22.988 - $.26).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until July2011 options expiration) for this Morgan Stanley (MS) covered calls position is 56.3%. This compares with a probability of profit of 51.3% for a buy-and-hold of Morgan Stanley (MS) over the same time period.

Returns -- Through May 2011

2011-05-31T19:08:00.001-04:00

1. May 2011 Year-to-Date Results:

As shown in the chart below, the Covered Calls Advisor Portfolio (CCAP) has increased by +6.18% over the first five months of calendar year 2011. This performance compares with an increase of +7.78% for the benchmark Russell 3000 index for the same five-month period.

CCAP Absolute Return (Jan 1st through May 31st, 2011) = +6.18%
($305,217.97-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through May 31st, 2011) = +7.78% ($80.78-$74.95)/$74.95

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark were as follows:

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.

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. As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating remains "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