Wow! What a Year!
We have to go back to the Great Depression to find a stock market performance that was worse than this year. For 2008, the S&P 500 declined by 38.3% which makes 2008 the single worst percentage decline since 1931, when the S&P 500 declined 43.4%.
The Covered Calls Advisor Portfolio(CCAP) declined by 20.48% in 2008. While this is certainly not a satisfactory result, when viewed in direct comparison with the 38.39% decline in the Russell 3000 Index ETF (ticker symbol IWV) overall stock market benchmark, the CCAP substantially outperformed by a total of 17.9 (38.39%-20.48%) percentage points. Consequently, this advisor remains encouraged by the results that can be achieved through a disciplined and persistent strategy of selling near-month covered calls in a diversified portfolio.
The single measure used by the Covered Calls Advisor to determine overall portfolio investment performance results is called 'Total Account Value Return Percent' -- a simple example demonstrates how this measure is calculated:
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.
Detailed CCAP results are shown below and are compared, as stated previously above, against an overall stock market benchmark for the comparable time period, namely the Russell 3000 Index ETF (ticker symbol IWV).
Full Year 2008 Results (Jan 1st through Dec 31st, 2008):
CCAP Full Year 2008 Absolute Return = -20.48%
($205,071.35-$257,886.51)/$257,886.51
Benchmark Russell 3000 Full Year 2008 Absolute Return =
-38.39%
($52.00-$84.40)/$84.40
Finally, as shown in the sidebar near the top of this site, the Covered Calls Advisor's Overall Market Meter continues to show that a SLIGHTLY BULLISH investment posture is appropriate at this time. The corresponding covered calls investing approach is to write near-month primarily slightly out-of-the-money covered calls. By 'slightly out-of-the-money', this advisor means that covered calls positions should be established, on average, in the range between 1.0% and 2.5% below the strike price for next-month covered calls.
Wishing You a Happy and Prosperous New Year in 2009!
Regards and Godspeed,
Jeff
Wednesday, December 31, 2008
Tuesday, December 30, 2008
Roll Up -- Humana Inc (HUM)
The Covered Calls Advisor Portfolio (CCAP) covered call position in Humana Inc(HUM) was rolled-up today (12/30/08) from the Jan09 $30s to the Jan09 $35s.
The spread transaction was executed as follows:
12/30/08 Buy-to-Close (BTC) 10 HUM Jan09 $30s @ $5.30
12/30/08 Sell-to-Open (STO) 10 HUM Jan09 $35s @ $1.90
Net Debit on Roll Up $3.40 ($5.30-$1.90)
The ‘net debit to strike price difference ratio’ was 68% [($5.30-$1.90)/($35-$30)]*100, which achieved the Covered Calls Advisor's desired threshold criteria which is to roll up only when this ratio is <75%. An additional reason for rolling up is that I like the potential for ongoing appreciation in HUM in 2009 and currently plan to retain the stock for continuing to write future covered calls against the Humana stock upon the Jan09 expiration. Rolling-up to the $35 strike price increases the likelihood that the HUM stock will be retained at Jan09 expiration thus making it slightly easier to then simply sell a Feb09 call to move the HUM covered calls forward from January to February.
A summary of the HUM transactions so far is as follows:
11/24/08 Initial Stock Purchase Transaction -- Bought 1000 HUM @ $25.55
11/24/08 Inital Calls Sold Transaction -- Sold 10 HUM Dec08 $25.00 Calls @ $2.90
Roll-Up-And-Out Spread Transaction:
12/08/08 Buy-to-Close (BTC) 10 HUM Dec08 $25s @ $5.50
12/08/08 Sell-to-Open (STO) 10 HUM Jan09 $30s @ $3.10
Roll-Up Spread Transaction:
12/30/08 Buy-to-Close (BTC) 10 HUM Jan09 $30s @ $5.30
12/30/08 Sell-to-Open (STO) 10 HUM Jan09 $35s @ $1.90
The overall performance results(including commissions) for the HUM transactions through the Jan09 expiration would be as follows:
Stock Purchase Cost: $25,558.95 ($25.55*1,000+$8.95 commission)
Net Profit:
(a) Options Income: -$1,052.25 (1000*($2.90-$5.50+$3.10-$5.30+$1.90) - 3*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised): +$9,432.10= ($35.00-$25.55)*1000 - 2*$8.95 commissions
Total Net Profit(If stock price exercised at $35.00): +$8,379.85
= (-$1,052.25 +$0.00 +$9,432.10)
Absolute Return If Exercised = +32.8%
+$8,379.85/$25,558.95
Annualized Return If Exercised (ARIE) +221.6%
(+$8,379.85/$25,558.95)*(365/54 days)
The spread transaction was executed as follows:
12/30/08 Buy-to-Close (BTC) 10 HUM Jan09 $30s @ $5.30
12/30/08 Sell-to-Open (STO) 10 HUM Jan09 $35s @ $1.90
Net Debit on Roll Up $3.40 ($5.30-$1.90)
The ‘net debit to strike price difference ratio’ was 68% [($5.30-$1.90)/($35-$30)]*100, which achieved the Covered Calls Advisor's desired threshold criteria which is to roll up only when this ratio is <75%. An additional reason for rolling up is that I like the potential for ongoing appreciation in HUM in 2009 and currently plan to retain the stock for continuing to write future covered calls against the Humana stock upon the Jan09 expiration. Rolling-up to the $35 strike price increases the likelihood that the HUM stock will be retained at Jan09 expiration thus making it slightly easier to then simply sell a Feb09 call to move the HUM covered calls forward from January to February.
A summary of the HUM transactions so far is as follows:
11/24/08 Initial Stock Purchase Transaction -- Bought 1000 HUM @ $25.55
11/24/08 Inital Calls Sold Transaction -- Sold 10 HUM Dec08 $25.00 Calls @ $2.90
Roll-Up-And-Out Spread Transaction:
12/08/08 Buy-to-Close (BTC) 10 HUM Dec08 $25s @ $5.50
12/08/08 Sell-to-Open (STO) 10 HUM Jan09 $30s @ $3.10
Roll-Up Spread Transaction:
12/30/08 Buy-to-Close (BTC) 10 HUM Jan09 $30s @ $5.30
12/30/08 Sell-to-Open (STO) 10 HUM Jan09 $35s @ $1.90
The overall performance results(including commissions) for the HUM transactions through the Jan09 expiration would be as follows:
Stock Purchase Cost: $25,558.95 ($25.55*1,000+$8.95 commission)
Net Profit:
(a) Options Income: -$1,052.25 (1000*($2.90-$5.50+$3.10-$5.30+$1.90) - 3*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised): +$9,432.10= ($35.00-$25.55)*1000 - 2*$8.95 commissions
Total Net Profit(If stock price exercised at $35.00): +$8,379.85
= (-$1,052.25 +$0.00 +$9,432.10)
Absolute Return If Exercised = +32.8%
+$8,379.85/$25,558.95
Annualized Return If Exercised (ARIE) +221.6%
(+$8,379.85/$25,558.95)*(365/54 days)
Tuesday, December 23, 2008
Microsoft Corp (MSFT) Continuation Transaction
The following transaction was made today to establish a covered calls position against the 500 shares owned in Microsoft Corp(MSFT):
12/23/08 Covered Calls Continuation Transaction -- STO 5 Jan09 $21.00 Calls @ $.36
The Transactions History to date is as follows:
08/18/08 Bought 500 MSFT @ $27.95
08/18/08 Sold 5 MSFT Sep08 $28.00 Calls @ $.81
09/11/08 $55.00 Dividend Received ($.11*500 shares)
09/20/08 Sep08 Options Expired
09/26/08 Covered Calls Continuation Transaction -- STO 5 Oct08 $28.00 Calls @ $.55
10/18/08 Oct08 Options Expired
10/20/08 Sold 5 MSFT Nov08 $22.50 Calls @ $1.75
11/22/08 Nov08 Options Expired
11/24/08 Sold 5 MSFT Dec08 $20 Calls @$.80
12/11/08 $65.00 Dividend Received ($.13*500 shares)
12/20/08 Dec08 Options Expired
12/23/08 Covered Calls Continuation Transaction -- STO 5 Jan09 $21.00 Calls @ $.36
The overall performance results(including commissions) for the MSFT transactions are as follows:
Stock Purchase Cost: $13,983.95
($27.95*500+$8.95 commission)
Net Profit:
(a) Options Income: +$1,751.50 (500*($.81+$.55+$1.75+$.80+$.36) - 5*$12.70 commissions)
(b) Dividend Income: +$130.00 ($55.00+$65.00)
(c) Capital Appreciation (If exercised): -$3,492.90
= ($21.00-$27.95)*500 - 2*$8.95 commissions
Annualized Return If Exercised (ARIE) -30.9%
12/23/08 Covered Calls Continuation Transaction -- STO 5 Jan09 $21.00 Calls @ $.36
The Transactions History to date is as follows:
08/18/08 Bought 500 MSFT @ $27.95
08/18/08 Sold 5 MSFT Sep08 $28.00 Calls @ $.81
09/11/08 $55.00 Dividend Received ($.11*500 shares)
09/20/08 Sep08 Options Expired
09/26/08 Covered Calls Continuation Transaction -- STO 5 Oct08 $28.00 Calls @ $.55
10/18/08 Oct08 Options Expired
10/20/08 Sold 5 MSFT Nov08 $22.50 Calls @ $1.75
11/22/08 Nov08 Options Expired
11/24/08 Sold 5 MSFT Dec08 $20 Calls @$.80
12/11/08 $65.00 Dividend Received ($.13*500 shares)
12/20/08 Dec08 Options Expired
12/23/08 Covered Calls Continuation Transaction -- STO 5 Jan09 $21.00 Calls @ $.36
The overall performance results(including commissions) for the MSFT transactions are as follows:
Stock Purchase Cost: $13,983.95
($27.95*500+$8.95 commission)
Net Profit:
(a) Options Income: +$1,751.50 (500*($.81+$.55+$1.75+$.80+$.36) - 5*$12.70 commissions)
(b) Dividend Income: +$130.00 ($55.00+$65.00)
(c) Capital Appreciation (If exercised): -$3,492.90
= ($21.00-$27.95)*500 - 2*$8.95 commissions
Annualized Return If Exercised (ARIE) -30.9%
Monday, December 22, 2008
Establish iShares MSCI South Korea ETF Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of the iShares MSCI South Korea ETF (EWY).
South Korea ranks #1 in this advisor's '2009 Country Value Rankings'.
To achieve this ranking, S. Korea demonstrates positive financial attributes in virtually all of the categories measured by these rankings. Some examples specifically for S. Korea are:
- Real GDP growth (estimated at 4.3%) should exceed inflation (est. at 3.0%) in 2009
- Relatively low current P/E Ratio of 8.6
- Relatively low P/Book Ratio of 1.23
- Government expected to operate with a Budget Surplus in 2009
- Current Accounts Balance (Exports minus Imports) expected to be positive in 2009
There are relatively few South Korean companies trading on American exchanges. The best way to invest in the strong potential for the South Korean stock market is through ETFs; and the one that is best proxy for the overall country's economy and stock market is the iShares MSCI South Korea ETF (ticker symbol EWY). Fortunately for us covered calls investors, this ETF has reasonably good liquidity in both the ETF itself but also in the call options. It is also well diversified across all sectors of the South Korean economy, with substantial percentages of the total portfolio in the consumer, industrial, information technology, and financial sectors.
Established iShares MSCI South Korea ETF (EWY) Covered Calls for Jan09:
12/22/08 Bought 600 EWY @ $28.50
12/22/08 Sold 6 EWY Jan09 $30.00 Calls @ $1.10
Annualized Return If Unchanged (ARIU): +54.1%
Annualized Return If Exercised (ARIE): +128.1%
Downside Breakeven Protection: 3.9%
South Korea ranks #1 in this advisor's '2009 Country Value Rankings'.
To achieve this ranking, S. Korea demonstrates positive financial attributes in virtually all of the categories measured by these rankings. Some examples specifically for S. Korea are:
- Real GDP growth (estimated at 4.3%) should exceed inflation (est. at 3.0%) in 2009
- Relatively low current P/E Ratio of 8.6
- Relatively low P/Book Ratio of 1.23
- Government expected to operate with a Budget Surplus in 2009
- Current Accounts Balance (Exports minus Imports) expected to be positive in 2009
There are relatively few South Korean companies trading on American exchanges. The best way to invest in the strong potential for the South Korean stock market is through ETFs; and the one that is best proxy for the overall country's economy and stock market is the iShares MSCI South Korea ETF (ticker symbol EWY). Fortunately for us covered calls investors, this ETF has reasonably good liquidity in both the ETF itself but also in the call options. It is also well diversified across all sectors of the South Korean economy, with substantial percentages of the total portfolio in the consumer, industrial, information technology, and financial sectors.
Established iShares MSCI South Korea ETF (EWY) Covered Calls for Jan09:
12/22/08 Bought 600 EWY @ $28.50
12/22/08 Sold 6 EWY Jan09 $30.00 Calls @ $1.10
Annualized Return If Unchanged (ARIU): +54.1%
Annualized Return If Exercised (ARIE): +128.1%
Downside Breakeven Protection: 3.9%
Establish Express Scripts Inc Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Express Scripts Inc (ESRX).
Express Scripts provides a range of Pharmacy Benefits Management(PBM) services in North America. The primary emphasis is mail order prescription fulfillment. The purchase of this company demonstrates a belief in the growth in the demographic and social trends that are important drivers in Express Scripts business; that is an aging population with increasing prescription needs; increasing percent of generic drug penetration (which is also the most profitable category for ESRX); and the commitment of the Obama administration and Congress to pursue health-care cost efficiency opportunities. In this regard, an increased emphasis on e-prescribing, mail order generics, and extending medical prescription benefits to more citizens are all trends that will directly benefit Pharmacy Benefits Managements(PBMs) in general and including Express Scripts in particular. The current P/E ratio is somewhat high at 20.5 but earnings are expected to grow by 20% next year. Other key financial metrics (such as the 0.8 Price/Sales Ratio and Total Debt of only 12.4% of their $14.8 Billion Market Cap) are at attractive levels. The excellence of their operational execution is demonstrated by the fact that cash flow is growing at a faster rate than net income. Overall, the success of their business model is evident in their having achieved an exceptional 85.4% return-on-equity.
Established Express Scripts Inc (ESRX) Covered Calls for Jan09:
12/22/08 Bought 200 ESRX @ $59.86
12/22/08 Sold 2 ESRX Jan09 $60.00 Calls @ $2.90
Annualized Return If Unchanged (ARIU): +68.0%
Annualized Return If Exercised (ARIE): +71.3%
Downside Breakeven Protection: 4.8%
Express Scripts provides a range of Pharmacy Benefits Management(PBM) services in North America. The primary emphasis is mail order prescription fulfillment. The purchase of this company demonstrates a belief in the growth in the demographic and social trends that are important drivers in Express Scripts business; that is an aging population with increasing prescription needs; increasing percent of generic drug penetration (which is also the most profitable category for ESRX); and the commitment of the Obama administration and Congress to pursue health-care cost efficiency opportunities. In this regard, an increased emphasis on e-prescribing, mail order generics, and extending medical prescription benefits to more citizens are all trends that will directly benefit Pharmacy Benefits Managements(PBMs) in general and including Express Scripts in particular. The current P/E ratio is somewhat high at 20.5 but earnings are expected to grow by 20% next year. Other key financial metrics (such as the 0.8 Price/Sales Ratio and Total Debt of only 12.4% of their $14.8 Billion Market Cap) are at attractive levels. The excellence of their operational execution is demonstrated by the fact that cash flow is growing at a faster rate than net income. Overall, the success of their business model is evident in their having achieved an exceptional 85.4% return-on-equity.
Established Express Scripts Inc (ESRX) Covered Calls for Jan09:
12/22/08 Bought 200 ESRX @ $59.86
12/22/08 Sold 2 ESRX Jan09 $60.00 Calls @ $2.90
Annualized Return If Unchanged (ARIU): +68.0%
Annualized Return If Exercised (ARIE): +71.3%
Downside Breakeven Protection: 4.8%
Establish Potash of Saskatchewan Corp Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Potash of Saskatchewan Corp (POT). This is a repeat of a successful covered calls position taken in POT last month which concluded with the call option being exercised and the POT stock was called away at options expiration last Friday.
The rationale in support of re-establishing an investment in Potash remains the same as stated previously when the POT covered calls position was established last month, which was as follows:
Potash Corp (POT) is the world's largest producer of crop fertilizers and they produce each of the three primary fertilizers (potash, phosphates, and nitrogen-based products). Of these three, potash is the most beneficial to farmers in terms of enhancing the productivity of arable acreage; consequently potash is in greatest demand and has the best profit margins of the three fertilizers. Potash Corp. ranks #1 in the world in potash production with about 22% of the world's supply. They are, therefore, in a very enviable position because of the relatively high cost to establish new potash production mines. The stock price of POT has plummeted this year at an even faster rate than the overall market, but this advisor believes that worldwide recession fears have created a temporarily depressed demand for fertilizers along with a steep, but also temporary, decline in feed grain and oilseed futures prices. But as the significant worldwide growth in the numbers of people moving up into the middle class continues (especially in China and India), and they continue to improve their diets (including more protein), the ongoing strong demand for more and more fertilizer will continue. Consequently, prices for corn, soybeans, and wheat are likely now to be reaching the lower end of their future price range, and POT is well positioned for a very nice price rebound when crop prices firm up. In the meantime, Potash Corp maintains their commitment to steadily increasing production capacity to meet the growing demand while maintaining good profit margins and a strong balance sheet. Finally, there is great value in the company's current stock price when it is evaluated in relation to key financial ratio metrics (including P/E ratio, free cash flow, and return-on-equity among others).
Today a covered calls investment was established with the purchase of Potash (POT) and the selling of the Jan09 $65 call options:
12/22/08 Bought 200 POT @ $65.84
12/22/08 Sold 2 POT Jan09 $65.00 Calls @ $5.90
Annualized Return If Unchanged (ARIU): +107.8%
Annualized Return If Exercised (ARIE): +107.8%
Downside Breakeven Protection: 9.0%
The rationale in support of re-establishing an investment in Potash remains the same as stated previously when the POT covered calls position was established last month, which was as follows:
Potash Corp (POT) is the world's largest producer of crop fertilizers and they produce each of the three primary fertilizers (potash, phosphates, and nitrogen-based products). Of these three, potash is the most beneficial to farmers in terms of enhancing the productivity of arable acreage; consequently potash is in greatest demand and has the best profit margins of the three fertilizers. Potash Corp. ranks #1 in the world in potash production with about 22% of the world's supply. They are, therefore, in a very enviable position because of the relatively high cost to establish new potash production mines. The stock price of POT has plummeted this year at an even faster rate than the overall market, but this advisor believes that worldwide recession fears have created a temporarily depressed demand for fertilizers along with a steep, but also temporary, decline in feed grain and oilseed futures prices. But as the significant worldwide growth in the numbers of people moving up into the middle class continues (especially in China and India), and they continue to improve their diets (including more protein), the ongoing strong demand for more and more fertilizer will continue. Consequently, prices for corn, soybeans, and wheat are likely now to be reaching the lower end of their future price range, and POT is well positioned for a very nice price rebound when crop prices firm up. In the meantime, Potash Corp maintains their commitment to steadily increasing production capacity to meet the growing demand while maintaining good profit margins and a strong balance sheet. Finally, there is great value in the company's current stock price when it is evaluated in relation to key financial ratio metrics (including P/E ratio, free cash flow, and return-on-equity among others).
Today a covered calls investment was established with the purchase of Potash (POT) and the selling of the Jan09 $65 call options:
12/22/08 Bought 200 POT @ $65.84
12/22/08 Sold 2 POT Jan09 $65.00 Calls @ $5.90
Annualized Return If Unchanged (ARIU): +107.8%
Annualized Return If Exercised (ARIE): +107.8%
Downside Breakeven Protection: 9.0%
Establish iShares MSCI China ETF Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI China ETF (FXI).
China ranks #2 in this advisor's '2009 Country Value Rankings'. Only South Korea (in which the CCAP has also established a current covered calls position) ranks higher than China in the Covered Calls Advisor's country valuation ratings.
Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 7.0% in 2009 should substantially exceed the estimated inflation rate of 4.1%
- Relatively low current P/E Ratio of 11.0
- Relatively low P/Book Ratio of 1.65
- Government expected to operate with a Budget Surplus in 2009
- Current Accounts Balance (Exports minus Imports) expected to be positive in 2009
Rather than try to select individual companies in China, the FXI ETF was selected for investment. It consists of market-cap-weighted positions in the 25 largest companies in China, and although it is most heavily weighted in the financial, energy, and telecommunications sectors, it still provides a relatively good way to diversify across the Chinese economy and its overall stock market performance.
Established iShares MSCI China ETF (FXI) Covered Calls for Jan09:
12/22/08 Bought 700 FXI @ $29.23
12/22/08 Sold 7 FXI Jan09 $32.00 Calls @ $.95
Annualized Return If Unchanged (ARIU): +45.6%
Annualized Return If Exercised (ARIE): +178.7%
Downside Breakeven Protection: 3.3%
China ranks #2 in this advisor's '2009 Country Value Rankings'. Only South Korea (in which the CCAP has also established a current covered calls position) ranks higher than China in the Covered Calls Advisor's country valuation ratings.
Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 7.0% in 2009 should substantially exceed the estimated inflation rate of 4.1%
- Relatively low current P/E Ratio of 11.0
- Relatively low P/Book Ratio of 1.65
- Government expected to operate with a Budget Surplus in 2009
- Current Accounts Balance (Exports minus Imports) expected to be positive in 2009
Rather than try to select individual companies in China, the FXI ETF was selected for investment. It consists of market-cap-weighted positions in the 25 largest companies in China, and although it is most heavily weighted in the financial, energy, and telecommunications sectors, it still provides a relatively good way to diversify across the Chinese economy and its overall stock market performance.
Established iShares MSCI China ETF (FXI) Covered Calls for Jan09:
12/22/08 Bought 700 FXI @ $29.23
12/22/08 Sold 7 FXI Jan09 $32.00 Calls @ $.95
Annualized Return If Unchanged (ARIU): +45.6%
Annualized Return If Exercised (ARIE): +178.7%
Downside Breakeven Protection: 3.3%
Establish Sybase Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Sybase Inc (SY).
Sybase is a systems software company with strong products in both the enterprise storage and the mobile phone systems/messaging areas, both of which will offer strong future growth possibilities, and their offerings in mobile messaging are especially highly regarded. Yet, the valuation of Sybase continues to be surprisingly reasonable. For example, the current P/E ratio is only 13, while earnings are expected to grow in excess of 20% over the next 12 months. Other financial metrics are strong as well:
- Cash & Equivalents is very high at 28% of a $2 billion total market capitalization.
- Free Cash Flow as a percent of market cap is an attractive 9.3%
- Given the high cash and free cash flow levels, total debt is very reasonable at 23% of market cap.
- Price/Sales Ratio of 1.9 is relatively low compared with most other systems software companies
- Return-on-Equity is good at 21.7%
Sybase also demonstrates a commitment to shareholders with their very high corporate goverance ratings. Finally, 10-year CEO John Chen seems to be a very candid, enthusiastic, and visionary leader, and these attributes are especially valuable in the always rapidly-evolving information technology sector.
Established Sybase Inc (SY) Covered Calls for Jan09:
12/22/08 Bought 300 SY @ $23.36
12/22/08 Sold 3 SY Jan09 $25.00 Calls @ $.65
Annualized Return If Unchanged (ARIU): +39.0%
Annualized Return If Exercised (ARIE): +137.6%
Downside Breakeven Protection: 2.8%
Sybase is a systems software company with strong products in both the enterprise storage and the mobile phone systems/messaging areas, both of which will offer strong future growth possibilities, and their offerings in mobile messaging are especially highly regarded. Yet, the valuation of Sybase continues to be surprisingly reasonable. For example, the current P/E ratio is only 13, while earnings are expected to grow in excess of 20% over the next 12 months. Other financial metrics are strong as well:
- Cash & Equivalents is very high at 28% of a $2 billion total market capitalization.
- Free Cash Flow as a percent of market cap is an attractive 9.3%
- Given the high cash and free cash flow levels, total debt is very reasonable at 23% of market cap.
- Price/Sales Ratio of 1.9 is relatively low compared with most other systems software companies
- Return-on-Equity is good at 21.7%
Sybase also demonstrates a commitment to shareholders with their very high corporate goverance ratings. Finally, 10-year CEO John Chen seems to be a very candid, enthusiastic, and visionary leader, and these attributes are especially valuable in the always rapidly-evolving information technology sector.
Established Sybase Inc (SY) Covered Calls for Jan09:
12/22/08 Bought 300 SY @ $23.36
12/22/08 Sold 3 SY Jan09 $25.00 Calls @ $.65
Annualized Return If Unchanged (ARIU): +39.0%
Annualized Return If Exercised (ARIE): +137.6%
Downside Breakeven Protection: 2.8%
Establish Raytheon Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of the Raytheon Company (RTN).
Established Raytheon (RTN) Covered Calls for Jan09:
12/22/08 Bought 300 RTN @ $49.20
12/22/08 Sold 3 RTN Jan09 $47.50 Calls @ $2.60
Annualized Return If Unchanged (ARIU): +33.6%
Annualized Return If Exercised (ARIE): +33.6%
Downside Breakeven Protection: 5.9%
Established Raytheon (RTN) Covered Calls for Jan09:
12/22/08 Bought 300 RTN @ $49.20
12/22/08 Sold 3 RTN Jan09 $47.50 Calls @ $2.60
Annualized Return If Unchanged (ARIU): +33.6%
Annualized Return If Exercised (ARIE): +33.6%
Downside Breakeven Protection: 5.9%
Saturday, December 20, 2008
December 2008 Expiration Transactions
The Covered Calls Advisor Portfolio (CCAP) contained a total of 12 positions with December 2008 expirations, with the following results:
- 9 positions (ACN,AOB,APC,HPQ,FXI,EWY,MCK,PBR & POT) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for these positions was:
Accenture Ltd -38.7%
American Oriental Bioengineering Inc +133.0%
Anadarko Petroleum Corp +115.0%
Hewlett-Packard Co. +92.1%
iShares MSCI China ETF -66.0%
iShares MSCI South Korea ETF -120.8%
McKesson Corp +133.7%
Petroleo Brasileiro -80.1%
Potash Corp of Saskatchewan Inc +201.4%
- 3 positions in the CCAP (MO,GU, and MSFT) ended out-of-the-money. Decisions will be made to either sell the stock, or to keep the stock and sell calls to establish Jan09 covered call positions. The related transactions will be made during the next few days and the actual transactions will be posted on this blog site on the same day they occur.
Details for each of the exercised positions are as follows:
1. Accenture Ltd. -- Closed
The Transactions History was as follows:
08/18/08 Initial Stock Purchase Transaction -- Bought 300 ACN @ $41.01
08/18/08 Initial Calls Sold Transaction -- Sold 3 ACN Sep08 $40.00 Calls @ $1.90
09/20/08 Sep08 Options Expired
09/26/08 Covered Calls Continuation Transaction -- STO 3 Oct08 $40.00 Calls @ $.70
10/08/08 $126.00 Ex-Dividend Income ($.42*300 shares)
10/18/08 Oct08 Options Expired
10/28/08 Covered Calls Continuation Transaction -- STO 3 ACN Nov08 $35.00 Calls at $.75
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- STO 3 ACN Dec08 $30 Calls at $2.05
12/20/08 Dec08 Options Exercised -- 300 shares ACN called away
Note: Closing price of ACN was $32.21 on expiration Friday
The overall performance results(including commissions) for the ACN transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $12,311.95
($41.01*300+$8.95 commission)
Net Profit:
(a) Options Income: +$1,575.20 (300*($1.90+$.70+$.75+$2.05) - 4*$11.20 commissions)
(b) Dividend Income: +$126.00
(c) Capital Appreciation: -$3,320.90
= ($30.00-$41.01)*300 - 2*$8.95 commissions
Total Net Profit: -$1,619.70
= (+$1,575.20 +$126.00 -$3,320.90)
ACN Annualized Return on Investment -38.7%
(-$1,619.70/$12,311.95)*(365/124 days)
2. American Oriental Bioengineering Inc -- Closed
Transactions History:
Established American Oriental Bioengineering Inc (AOB) Covered Calls for Dec08:
11/24/08 Initial Stock Purchase Transaction -- Bought 1500 AOB @ $4.91
11/24/08 Initial Calls Sold Transaction -- Sold 15 AOB Dec08 $5.00 Calls @ $.40
12/20/08 Dec08 Options Exercised -- 1500 shares AOB called away
Note: Closing price of AOB was $6.30 on expiration Friday
The overall performance results(including commissions) for the AOB transactions through the Dec08 expiration was as follows:
Stock Purchase Cost: $7,356.05
($4.91*1500+$8.95 commission)
Net Profit:
(a) Options Income: +$579.80 (1500*$.40 - $20.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$117.10
= ($5.00-$4.91)*1500 - 2*$8.95 commissions
Total Net Profit: +$696.90
= (+$579.80 +$0.00 +$117.10)
AOB Annualized Return on Investment +133.0%
(+$696.90/$7,356.05)*(365/26 days)
3. Anadarko Petroleum Corp -- Closed
11/24/08 Initial Stock Purchase Transaction -- Bought 500 APC @ $35.62
11/24/08 Initial Calls Sold Transaction -- Sold 5 APC Dec08 $35.00 Calls @ $3.60
12/20/08 Dec08 Options Exercised -- 500 shares APC called away
Note: Closing price of APC was $37.16 on expiration Friday
The overall performance results(including commissions)for the APC transaction through the Sep08 expiration was as follows:
Stock Purchase Cost: $17,818.95
($35.62*500+$8.95 commission)
Net Profit:
(a) Options Income: +$1,787.30 (500*$3.60 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$327.90
= ($35.00-$35.62)*500 - 2*$8.95 commissions
Total Net Profit: +$1,459.40
= (+$1,787.30+$0.00-$327.90)
APC Annualized Return on Investment: +115.0%
(+$1,459.40/$17,818.95)*(365/26 days)
4. Hewlett-Packard Co -- Closed
11/24/08 Initial Stock Purchase Transaction -- Bought 500 HPQ @ $35.18
11/24/08 Initial Calls Sold Transaction -- Sold 5 HPQ Dec08 $35.00 Calls @ $2.55
12/20/08 Dec08 Options Exercised -- 500 shares HPQ called away
Note: Closing price of HPQ was $35.40 on expiration Friday
The overall performance results(including commissions)for the HPQ transaction through the Dec08 expiration was as follows:
Stock Purchase Cost: $17,598.95
($35.18*500+$8.95 commission)
Net Profit:
(a) Options Income: +$1,262.30 (500*$2.55 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$107.90
= ($35.00-$35.18)*500 - 2*$8.95 commissions
Total Net Profit: +$1,154.40
= (+$1,262.30+$0.00-$107.90)
HPQ Annualized Return on Investment: +92.1%
(+$1,154.40/$17,598.95)*(365/26 days)
5. iShares MSCI China ETF -- Closed
Transactions History:
08/18/08 Initial Calls Sold Transaction -- Bought 800 FXI @ $40.60
08/18/08 Initial Calls Sold Transaction -- Sold 8 FXI Sep08 $44.00 Calls @ $.60
09/20/08 Sep08 Options Expired
09/25/08 Covered Calls Continuation Transaction -- STO 8 Oct08 $40.00 Calls @ $1.10
10/18/08 Oct08 Options Expired
10/20/08 Covered Calls Continuation Transaction -- STO 8 Nov08 $34.00 Calls @ $1.30
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- Sold 8 FXI Dec08 $27 Calls at $1.55
12/20/08 Dec08 Options Exercised -- 800 shares FXI called away
Note: Closing price of FXI was $30.55 on expiration Friday
The overall performance results(including commissions) for the FXI transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $32,488.95
($40.60*800+$8.95 commission)
Net Profit:
(a) Options Income: +$3,610.10 (800*($.60 + $1.10 + $1.30 + $1.55) - 2*$14.95 commissions)
(b) Dividend Income: +$0
(c) Capital Appreciation: -$10,897.90
= ($27.00-$40.60)*800 - 2*$8.95 commissions
Total Net Profit: -$7,287.80
= (+$3,610.10 +$0.00 -$10,897.90)
FXI Annualized Return on Investment -66.0%
(-$7,287.80/$32,488.95)*(365/124 days)
6. iShares MSCI South Korea ETF(EWY) -- Closed
The Transactions History was as follows:
08/18/08 Initial Stock Purchase Transaction -- Bought 700 EWY @ $48.35
08/18/08 Initial Calls Sold Transaction -- Sold 7 EWY Sep08 $50 Calls @ $1.05
09/20/08 Sep08 Options Expired
09/25/08 Covered Calls Continuation Transaction -- Sold 7 EWY Oct08 $47.00 Calls @
$.65
10/18/08 Oct08 Options Expired
10/20/08 Covered Calls Continuation Transaction -- STO 7 Nov08 $30.00 Calls @ $2.30
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- Sold 7 EWY Dec08 $24 Calls at $1.25
12/20/08 Dec08 Options Exercised -- 700 shares EWY called away
Note: Closing price of EWY was $29.05 on expiration Friday
The overall performance results(including commissions) for the EWY transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $33,853.95
($48.35*700+$8.95 commission)
Net Profit:
(a) Options Income: +$3,618.20 (700*($1.05+$.65+$2.30+$1.25) - 4*$14.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$17,062.90
= ($24.00-$48.35)*700 - 2*$8.95 commissions
Total Net Profit: -$13,894.70
= (+$3,618.20 +$0.00 -$17,062.90)
EWY Annualized Return on Investment -120.8%
(-$13,894.70/$33,853.95)*(365/124 days)
7. McKesson Corporation -- Closed
The Transactions History was as follows:
11/24/08 Initial Stock Purchase -- Bought 300 MCK @ $30.72
11/24/08 Initial Call Option Transaction -- Sold 3 MCK Dec08 $30.00 Calls @ $2.35
11/26/08 $36.00 Ex-Dividend Income ($.12 per share X 300 shares)
11/28/08 Roll Up Transaction -- BTC 3 MCK Dec 30s @ $5.28
11/28/08 Roll Up Transaction -- STO 3 MCK Dec 35s @ $1.63
Note: MCK was trading at $34.88 today when the roll up transaction was executed.
12/20/08 Dec08 Options Exercised -- 300 shares MCK called away
Note: Closing price of MCK was $37.89 on expiration Friday
The overall performance results(including commissions) for the MCK transactions through the Dec08 expiration was as follows:
Stock Purchase Cost: $9,224.95
($30.72*300+$8.95 commission)
Net Profit:
(a) Options Income: -$423.60 (300*($2.35-$5.28+$1.63) - 3*$11.20 commissions)
(b) Dividend Income: +$36.00 (300*$.12/share)
(c) Capital Appreciation: +$1,266.10
= ($35.00-$30.72)*300 - 2*$8.95 commissions
Total Net Profit: +$878.50
= (-$423.60 +$36.00 +$1,266.10)
MCK Annualized Return on Investment +133.7%
(+$878.50/$9,224.95)*(365/26 days)
8. Petroleo Brasileiro(Petrobras) -- Closed
The Transactions History was as follows:
07/07/08 Initial Stock Purchase Transaction -- Bought 400 PBR @ $65.95
07/07/08 Initial Calls Sold Transaction -- Sold 4 PBR Jul08 $65.00 Calls @ $2.95
07/19/08 July08 Options Expired
07/24/08 Covered Calls Continuation Transaction -- Sold 4 PBR Aug08 $60.00 Calls @ $1.00
Note: Price of PBR was $56.86 at the time when the calls were sold today.
08/16/08 Aug08 Options Expired
08/18/08 Covered Calls Continuation Transaction -- STO 4 Sep08 $55.00 Calls @ $.90
Note: Price of PBR was $49.45 when the calls were sold today.
09/20/08 Sep08 Options Expired
09/25/08 Covered Calls Continuation Transaction -- STO 4 Oct08 $47.50 Calls @ $2.70
10/18/08 Oct08 Options Expired
10/20/08 Covered Calls Continuation Transaction -- STO 4 Nov08 $30.00 Calls @ $2.30
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- Sold 4 Dec08 Dec08 $20 Calls at $2.15
12/20/08 Dec08 Options Exercised -- 400 shares PBR called away
Note: Closing price of PBR was $23.40 on expiration Friday
The overall performance results(including commissions) for the PBR transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $26,388.95
($65.95*400+$8.95 commission)
Net Profit:
(a) Options Income: +$4,728.30 (400*($2.95+$1.00+$.90+$2.70+$2.30+$2.15) - 6*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$17,062.90
= ($24.00-$48.35)*700 - 2*$8.95 commissions
Total Net Profit: -$12,334.60
= (+$4,728.30 +$0.00 -$17,062.90)
PBR Annualized Return on Investment -80.1%
(-$12,334.60/$33,853.95)*(365/166 days)
9. Potash of Saskatchewan Inc -- Closed
Transactions History:
11/28/08 Initial Stock Purchase Transaction -- Bought 200 POT @ $61.40
11/28/08 Initial Calls Sold Transaction -- Sold 2 POT Dec08 $65.00 Calls @ $4.00
12/20/08 Dec08 Options Exercised -- 400 shares POT called away
Note: Closing price of POT was $72.26 on expiration Friday
The overall performance results(including commissions) for the POT transactions through the Dec08 expiration was as follows:
Stock Purchase Cost: $12,288.95
($61.40*200+$8.95 commission)
Net Profit:
(a) Options Income: +$789.55 (200*$4.00 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$702.10
= ($65.00-$61.40)*200 - 2*$8.95 commissions
Total Net Profit: +$1,491.65
= (+$789.55 +$0.00 +$702.10)
POT Annualized Return on Investment +201.4%
(+$1,491.65/$12,288.95)*(365/22 days)
- 9 positions (ACN,AOB,APC,HPQ,FXI,EWY,MCK,PBR & POT) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for these positions was:
Accenture Ltd -38.7%
American Oriental Bioengineering Inc +133.0%
Anadarko Petroleum Corp +115.0%
Hewlett-Packard Co. +92.1%
iShares MSCI China ETF -66.0%
iShares MSCI South Korea ETF -120.8%
McKesson Corp +133.7%
Petroleo Brasileiro -80.1%
Potash Corp of Saskatchewan Inc +201.4%
- 3 positions in the CCAP (MO,GU, and MSFT) ended out-of-the-money. Decisions will be made to either sell the stock, or to keep the stock and sell calls to establish Jan09 covered call positions. The related transactions will be made during the next few days and the actual transactions will be posted on this blog site on the same day they occur.
Details for each of the exercised positions are as follows:
1. Accenture Ltd. -- Closed
The Transactions History was as follows:
08/18/08 Initial Stock Purchase Transaction -- Bought 300 ACN @ $41.01
08/18/08 Initial Calls Sold Transaction -- Sold 3 ACN Sep08 $40.00 Calls @ $1.90
09/20/08 Sep08 Options Expired
09/26/08 Covered Calls Continuation Transaction -- STO 3 Oct08 $40.00 Calls @ $.70
10/08/08 $126.00 Ex-Dividend Income ($.42*300 shares)
10/18/08 Oct08 Options Expired
10/28/08 Covered Calls Continuation Transaction -- STO 3 ACN Nov08 $35.00 Calls at $.75
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- STO 3 ACN Dec08 $30 Calls at $2.05
12/20/08 Dec08 Options Exercised -- 300 shares ACN called away
Note: Closing price of ACN was $32.21 on expiration Friday
The overall performance results(including commissions) for the ACN transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $12,311.95
($41.01*300+$8.95 commission)
Net Profit:
(a) Options Income: +$1,575.20 (300*($1.90+$.70+$.75+$2.05) - 4*$11.20 commissions)
(b) Dividend Income: +$126.00
(c) Capital Appreciation: -$3,320.90
= ($30.00-$41.01)*300 - 2*$8.95 commissions
Total Net Profit: -$1,619.70
= (+$1,575.20 +$126.00 -$3,320.90)
ACN Annualized Return on Investment -38.7%
(-$1,619.70/$12,311.95)*(365/124 days)
2. American Oriental Bioengineering Inc -- Closed
Transactions History:
Established American Oriental Bioengineering Inc (AOB) Covered Calls for Dec08:
11/24/08 Initial Stock Purchase Transaction -- Bought 1500 AOB @ $4.91
11/24/08 Initial Calls Sold Transaction -- Sold 15 AOB Dec08 $5.00 Calls @ $.40
12/20/08 Dec08 Options Exercised -- 1500 shares AOB called away
Note: Closing price of AOB was $6.30 on expiration Friday
The overall performance results(including commissions) for the AOB transactions through the Dec08 expiration was as follows:
Stock Purchase Cost: $7,356.05
($4.91*1500+$8.95 commission)
Net Profit:
(a) Options Income: +$579.80 (1500*$.40 - $20.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$117.10
= ($5.00-$4.91)*1500 - 2*$8.95 commissions
Total Net Profit: +$696.90
= (+$579.80 +$0.00 +$117.10)
AOB Annualized Return on Investment +133.0%
(+$696.90/$7,356.05)*(365/26 days)
3. Anadarko Petroleum Corp -- Closed
11/24/08 Initial Stock Purchase Transaction -- Bought 500 APC @ $35.62
11/24/08 Initial Calls Sold Transaction -- Sold 5 APC Dec08 $35.00 Calls @ $3.60
12/20/08 Dec08 Options Exercised -- 500 shares APC called away
Note: Closing price of APC was $37.16 on expiration Friday
The overall performance results(including commissions)for the APC transaction through the Sep08 expiration was as follows:
Stock Purchase Cost: $17,818.95
($35.62*500+$8.95 commission)
Net Profit:
(a) Options Income: +$1,787.30 (500*$3.60 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$327.90
= ($35.00-$35.62)*500 - 2*$8.95 commissions
Total Net Profit: +$1,459.40
= (+$1,787.30+$0.00-$327.90)
APC Annualized Return on Investment: +115.0%
(+$1,459.40/$17,818.95)*(365/26 days)
4. Hewlett-Packard Co -- Closed
11/24/08 Initial Stock Purchase Transaction -- Bought 500 HPQ @ $35.18
11/24/08 Initial Calls Sold Transaction -- Sold 5 HPQ Dec08 $35.00 Calls @ $2.55
12/20/08 Dec08 Options Exercised -- 500 shares HPQ called away
Note: Closing price of HPQ was $35.40 on expiration Friday
The overall performance results(including commissions)for the HPQ transaction through the Dec08 expiration was as follows:
Stock Purchase Cost: $17,598.95
($35.18*500+$8.95 commission)
Net Profit:
(a) Options Income: +$1,262.30 (500*$2.55 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$107.90
= ($35.00-$35.18)*500 - 2*$8.95 commissions
Total Net Profit: +$1,154.40
= (+$1,262.30+$0.00-$107.90)
HPQ Annualized Return on Investment: +92.1%
(+$1,154.40/$17,598.95)*(365/26 days)
5. iShares MSCI China ETF -- Closed
Transactions History:
08/18/08 Initial Calls Sold Transaction -- Bought 800 FXI @ $40.60
08/18/08 Initial Calls Sold Transaction -- Sold 8 FXI Sep08 $44.00 Calls @ $.60
09/20/08 Sep08 Options Expired
09/25/08 Covered Calls Continuation Transaction -- STO 8 Oct08 $40.00 Calls @ $1.10
10/18/08 Oct08 Options Expired
10/20/08 Covered Calls Continuation Transaction -- STO 8 Nov08 $34.00 Calls @ $1.30
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- Sold 8 FXI Dec08 $27 Calls at $1.55
12/20/08 Dec08 Options Exercised -- 800 shares FXI called away
Note: Closing price of FXI was $30.55 on expiration Friday
The overall performance results(including commissions) for the FXI transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $32,488.95
($40.60*800+$8.95 commission)
Net Profit:
(a) Options Income: +$3,610.10 (800*($.60 + $1.10 + $1.30 + $1.55) - 2*$14.95 commissions)
(b) Dividend Income: +$0
(c) Capital Appreciation: -$10,897.90
= ($27.00-$40.60)*800 - 2*$8.95 commissions
Total Net Profit: -$7,287.80
= (+$3,610.10 +$0.00 -$10,897.90)
FXI Annualized Return on Investment -66.0%
(-$7,287.80/$32,488.95)*(365/124 days)
6. iShares MSCI South Korea ETF(EWY) -- Closed
The Transactions History was as follows:
08/18/08 Initial Stock Purchase Transaction -- Bought 700 EWY @ $48.35
08/18/08 Initial Calls Sold Transaction -- Sold 7 EWY Sep08 $50 Calls @ $1.05
09/20/08 Sep08 Options Expired
09/25/08 Covered Calls Continuation Transaction -- Sold 7 EWY Oct08 $47.00 Calls @
$.65
10/18/08 Oct08 Options Expired
10/20/08 Covered Calls Continuation Transaction -- STO 7 Nov08 $30.00 Calls @ $2.30
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- Sold 7 EWY Dec08 $24 Calls at $1.25
12/20/08 Dec08 Options Exercised -- 700 shares EWY called away
Note: Closing price of EWY was $29.05 on expiration Friday
The overall performance results(including commissions) for the EWY transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $33,853.95
($48.35*700+$8.95 commission)
Net Profit:
(a) Options Income: +$3,618.20 (700*($1.05+$.65+$2.30+$1.25) - 4*$14.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$17,062.90
= ($24.00-$48.35)*700 - 2*$8.95 commissions
Total Net Profit: -$13,894.70
= (+$3,618.20 +$0.00 -$17,062.90)
EWY Annualized Return on Investment -120.8%
(-$13,894.70/$33,853.95)*(365/124 days)
7. McKesson Corporation -- Closed
The Transactions History was as follows:
11/24/08 Initial Stock Purchase -- Bought 300 MCK @ $30.72
11/24/08 Initial Call Option Transaction -- Sold 3 MCK Dec08 $30.00 Calls @ $2.35
11/26/08 $36.00 Ex-Dividend Income ($.12 per share X 300 shares)
11/28/08 Roll Up Transaction -- BTC 3 MCK Dec 30s @ $5.28
11/28/08 Roll Up Transaction -- STO 3 MCK Dec 35s @ $1.63
Note: MCK was trading at $34.88 today when the roll up transaction was executed.
12/20/08 Dec08 Options Exercised -- 300 shares MCK called away
Note: Closing price of MCK was $37.89 on expiration Friday
The overall performance results(including commissions) for the MCK transactions through the Dec08 expiration was as follows:
Stock Purchase Cost: $9,224.95
($30.72*300+$8.95 commission)
Net Profit:
(a) Options Income: -$423.60 (300*($2.35-$5.28+$1.63) - 3*$11.20 commissions)
(b) Dividend Income: +$36.00 (300*$.12/share)
(c) Capital Appreciation: +$1,266.10
= ($35.00-$30.72)*300 - 2*$8.95 commissions
Total Net Profit: +$878.50
= (-$423.60 +$36.00 +$1,266.10)
MCK Annualized Return on Investment +133.7%
(+$878.50/$9,224.95)*(365/26 days)
8. Petroleo Brasileiro(Petrobras) -- Closed
The Transactions History was as follows:
07/07/08 Initial Stock Purchase Transaction -- Bought 400 PBR @ $65.95
07/07/08 Initial Calls Sold Transaction -- Sold 4 PBR Jul08 $65.00 Calls @ $2.95
07/19/08 July08 Options Expired
07/24/08 Covered Calls Continuation Transaction -- Sold 4 PBR Aug08 $60.00 Calls @ $1.00
Note: Price of PBR was $56.86 at the time when the calls were sold today.
08/16/08 Aug08 Options Expired
08/18/08 Covered Calls Continuation Transaction -- STO 4 Sep08 $55.00 Calls @ $.90
Note: Price of PBR was $49.45 when the calls were sold today.
09/20/08 Sep08 Options Expired
09/25/08 Covered Calls Continuation Transaction -- STO 4 Oct08 $47.50 Calls @ $2.70
10/18/08 Oct08 Options Expired
10/20/08 Covered Calls Continuation Transaction -- STO 4 Nov08 $30.00 Calls @ $2.30
11/22/08 Nov08 Options Expired
11/24/08 Covered Calls Continuation Transaction -- Sold 4 Dec08 Dec08 $20 Calls at $2.15
12/20/08 Dec08 Options Exercised -- 400 shares PBR called away
Note: Closing price of PBR was $23.40 on expiration Friday
The overall performance results(including commissions) for the PBR transactions through the Dec08 expiration were as follows:
Stock Purchase Cost: $26,388.95
($65.95*400+$8.95 commission)
Net Profit:
(a) Options Income: +$4,728.30 (400*($2.95+$1.00+$.90+$2.70+$2.30+$2.15) - 6*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$17,062.90
= ($24.00-$48.35)*700 - 2*$8.95 commissions
Total Net Profit: -$12,334.60
= (+$4,728.30 +$0.00 -$17,062.90)
PBR Annualized Return on Investment -80.1%
(-$12,334.60/$33,853.95)*(365/166 days)
9. Potash of Saskatchewan Inc -- Closed
Transactions History:
11/28/08 Initial Stock Purchase Transaction -- Bought 200 POT @ $61.40
11/28/08 Initial Calls Sold Transaction -- Sold 2 POT Dec08 $65.00 Calls @ $4.00
12/20/08 Dec08 Options Exercised -- 400 shares POT called away
Note: Closing price of POT was $72.26 on expiration Friday
The overall performance results(including commissions) for the POT transactions through the Dec08 expiration was as follows:
Stock Purchase Cost: $12,288.95
($61.40*200+$8.95 commission)
Net Profit:
(a) Options Income: +$789.55 (200*$4.00 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$702.10
= ($65.00-$61.40)*200 - 2*$8.95 commissions
Total Net Profit: +$1,491.65
= (+$789.55 +$0.00 +$702.10)
POT Annualized Return on Investment +201.4%
(+$1,491.65/$12,288.95)*(365/22 days)
Friday, December 19, 2008
Establish United States Oil Fund ETF Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of the United States Oil Fund ETF (USO).
USO is an ETF proxy for the spot price of West Texas light, sweet crude oil. The oil price has plummeted from $140+ earlier this year to below $35 now. By establishing a position in USO now, this advisor is not trying to "pick the bottom" of the oil price. Rather, it is a commitment to the proposition that oil is reasonably close to the lower end of its likely future price range and that its price is likely to move higher over the next several months. Because of the intense bearishness in its recent price, the implied volatility in the USO options have spiked up to a very high level -- this makes selling the calls (and the associated very high potential returns from this covered calls position) an especially attractive investment now.
Established United States Oil Fund ETF (USO) Covered Calls for Jan09:
12/19/08 Bought 200 USO @ $32.33
12/19/08 Sold 2 USO Jan09 $34.00 Calls @ $2.40
Annualized Return If Unchanged (ARIU): +93.3%
Annualized Return If Exercised (ARIE): +158.4%
Downside Breakeven Protection: 7.4%
USO is an ETF proxy for the spot price of West Texas light, sweet crude oil. The oil price has plummeted from $140+ earlier this year to below $35 now. By establishing a position in USO now, this advisor is not trying to "pick the bottom" of the oil price. Rather, it is a commitment to the proposition that oil is reasonably close to the lower end of its likely future price range and that its price is likely to move higher over the next several months. Because of the intense bearishness in its recent price, the implied volatility in the USO options have spiked up to a very high level -- this makes selling the calls (and the associated very high potential returns from this covered calls position) an especially attractive investment now.
Established United States Oil Fund ETF (USO) Covered Calls for Jan09:
12/19/08 Bought 200 USO @ $32.33
12/19/08 Sold 2 USO Jan09 $34.00 Calls @ $2.40
Annualized Return If Unchanged (ARIU): +93.3%
Annualized Return If Exercised (ARIE): +158.4%
Downside Breakeven Protection: 7.4%
Tuesday, December 16, 2008
"Explain Why You Are Buying" -- Revisited
Earlier this year, an article on this blog titled "Explain Why You Are Buying" (link) described why it is important for us to be able to make a "clear, concise, and confident" explanation as to why a particular stock should be purchased. In support of this recommendation, this Covered Calls Advisor blog has begun providing a short explanation as to why a particular stock was selected for purchase. For example, the most recent newly established covered calls position was in Potash of Saskatchewan -- the second paragraph (link) provides a summary of this advisor's rationale for why Potash was determined to be a worthwhile buy.
What caused this advisor to 'revisit' this topic once again in this article? Today I was reading an article in Fortune titled "The best stocks for 2009" (link). While reading the article, I was struck by the exceptionally clear analysis and reasoning provided in support of why each stock had been selected as a 'buy' -- which reminded me once again of how important it is for each of us to take the time to make a "clear, concise, and confident" explanation of a particular stock before making a final commitment to the actual purchase decision.
Regards and Godspeed,
Jeff
What caused this advisor to 'revisit' this topic once again in this article? Today I was reading an article in Fortune titled "The best stocks for 2009" (link). While reading the article, I was struck by the exceptionally clear analysis and reasoning provided in support of why each stock had been selected as a 'buy' -- which reminded me once again of how important it is for each of us to take the time to make a "clear, concise, and confident" explanation of a particular stock before making a final commitment to the actual purchase decision.
Regards and Godspeed,
Jeff
Monday, December 8, 2008
Roll-Up-And-Out -- Humana Inc (HUM)
The Covered Calls Advisor Portfolio (CCAP) covered call position in Humana Inc(HUM) was rolled-up-and-out today (12/08/08) from the Dec08 $25s to the Jan09 $30s. The spread transaction was executed as follows:
12/08/08 Buy-to-Close (BTC) 10 HUM Dec08 $25s @ $5.50
12/08/08 Sell-to-Open (STO) 10 HUM Jan09 $30s @ $3.10
Net Debit on Roll Up $2.40 ($5.50-$3.10)
Note: The price of HUM was $30.24 today when the call options spread transaction was executed.
This transaction meets the Covered Calls Advisor criterion that the average daily rate-of-decay for the new position is more than 200% higher than that for retaining the existing position. In fact, as described in detail below, today's options spread transaction achieved a very attractive increase in the average daily rate of decay of 229.5%, which was calculated as follows:
As of today there are exactly 12 calendar days remaining until Dec08 options expiration. For the existing HUM Dec08 $25 call, the 'average daily rate-of-decay' of the short call option position was $.0217 [total time value of $.26 ($5.50-($30.24-$25.00)) divided by 12 days remaining until Dec08 expiration]. This $.0217 per day [which alternatively can be thought of as $2.17 per day per option contract written(since each contract represents 100 shares of stock)] represents the average daily income that will be squeezed out of the remaining time value of the option between today and the option expiration date. This $.0217 per day from retaining the existing position is then compared against the 'average daily rate-of-decay' for a new Jan09 $30 strike alternative position. For this alternative, the 'avg daily rate-of-decay' is $.0715 which is obtained from the time value of $2.86 [$3.10-($30.24-$30.00)] divided by the 40 days remaining until Jan09 expiration. This roll-up-and-out alternative has a 229.5% ($.0715-$.0217)/$.0217 greater average daily rate-of-decay than the existing position if the existing position were to be retained until expiration.
A summary of the HUM transactions so far is as follows:
11/24/08 Initial Stock Purchase Transaction -- Bought 1000 HUM @ $25.55
11/24/08 Inital Calls Sold Transaction -- Sold 10 HUM Dec08 $25.00 Calls @ $2.90
Roll-Up-And-Out Spread Transaction:
12/08/08 Buy-to-Close (BTC) 10 HUM Dec08 $25s @ $5.50
12/08/08 Sell-to-Open (STO) 10 HUM Jan09 $30s @ $3.10
Net Debit on Roll Up was $2.40 ($5.50-$3.10)
Note: Price of HUM was $30.24 today when the call options spread transaction was executed.
The overall performance results(including commissions) for the HUM transactions through the Jan09 expiration would be as follows:
Stock Purchase Cost: $25,558.95
($25.55*1,000+$8.95 commission)
Net Profit:
(a) Options Income: +$450.35 (1000*($2.90-$5.50+$3.10) - 3*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised): +$4,432.10
= ($30.00-$25.55)*1000 - 2*$8.95 commissions
Total Net Profit(If stock price exercised at $30.00): +$4,882.45
= (+$450.35 +$0.00 +$4,432.10)
Annualized Return If Exercised (ARIE) +129.1%
(+$4,882.45/$25,558.95)*(365/54 days)
12/08/08 Buy-to-Close (BTC) 10 HUM Dec08 $25s @ $5.50
12/08/08 Sell-to-Open (STO) 10 HUM Jan09 $30s @ $3.10
Net Debit on Roll Up $2.40 ($5.50-$3.10)
Note: The price of HUM was $30.24 today when the call options spread transaction was executed.
This transaction meets the Covered Calls Advisor criterion that the average daily rate-of-decay for the new position is more than 200% higher than that for retaining the existing position. In fact, as described in detail below, today's options spread transaction achieved a very attractive increase in the average daily rate of decay of 229.5%, which was calculated as follows:
As of today there are exactly 12 calendar days remaining until Dec08 options expiration. For the existing HUM Dec08 $25 call, the 'average daily rate-of-decay' of the short call option position was $.0217 [total time value of $.26 ($5.50-($30.24-$25.00)) divided by 12 days remaining until Dec08 expiration]. This $.0217 per day [which alternatively can be thought of as $2.17 per day per option contract written(since each contract represents 100 shares of stock)] represents the average daily income that will be squeezed out of the remaining time value of the option between today and the option expiration date. This $.0217 per day from retaining the existing position is then compared against the 'average daily rate-of-decay' for a new Jan09 $30 strike alternative position. For this alternative, the 'avg daily rate-of-decay' is $.0715 which is obtained from the time value of $2.86 [$3.10-($30.24-$30.00)] divided by the 40 days remaining until Jan09 expiration. This roll-up-and-out alternative has a 229.5% ($.0715-$.0217)/$.0217 greater average daily rate-of-decay than the existing position if the existing position were to be retained until expiration.
A summary of the HUM transactions so far is as follows:
11/24/08 Initial Stock Purchase Transaction -- Bought 1000 HUM @ $25.55
11/24/08 Inital Calls Sold Transaction -- Sold 10 HUM Dec08 $25.00 Calls @ $2.90
Roll-Up-And-Out Spread Transaction:
12/08/08 Buy-to-Close (BTC) 10 HUM Dec08 $25s @ $5.50
12/08/08 Sell-to-Open (STO) 10 HUM Jan09 $30s @ $3.10
Net Debit on Roll Up was $2.40 ($5.50-$3.10)
Note: Price of HUM was $30.24 today when the call options spread transaction was executed.
The overall performance results(including commissions) for the HUM transactions through the Jan09 expiration would be as follows:
Stock Purchase Cost: $25,558.95
($25.55*1,000+$8.95 commission)
Net Profit:
(a) Options Income: +$450.35 (1000*($2.90-$5.50+$3.10) - 3*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised): +$4,432.10
= ($30.00-$25.55)*1000 - 2*$8.95 commissions
Total Net Profit(If stock price exercised at $30.00): +$4,882.45
= (+$450.35 +$0.00 +$4,432.10)
Annualized Return If Exercised (ARIE) +129.1%
(+$4,882.45/$25,558.95)*(365/54 days)
Friday, December 5, 2008
A Heuristic Approach for Rolling-Up-and-Out Covered Calls
A prior post (link) described the decision-making process used by the Covered Calls Advisor to determine if an existing covered calls position should be rolled-up (in the same expiration month) to a higher strike price. Alternatively, this post explains a heuristic method used to analyze whether an existing position should be rolled-up-and-out (i.e. rolled 'up' to a higher strike price and simultaneously 'out' to the next expiration month).
First, the term 'heuristic' is defined in Webster's dictionary as "involving or serving as an aid to learning, discovery, or problem-solving by experimental and especially trial-and-error methods." So by definition, the criteria developed to determine whether or not to 'roll-up-and-out' a particular covered call will not be a scientifically derived optimal solution, but rather this advisor's best estimate, based on experience with covered calls (especially options premium pricing and options time decay rates) as to what the decision-making rule should be at this time. Over time, it is expected that the decision criteria will be modified as additional information (i.e. feedback) is received that provides additional insights into this question. This continual feedback loop process is consistent with and is a normal feature of the heuristic method.
To determine what the roll-up-and-out policy should be, let's consider an existing covered calls position in the Covered Calls Advisor Portfolio. The existing position was:
Owned 600 shares Fluor(FLR) at a price this afternoon of $44.56.
Had 6 Dec08 $35 calls written (i.e. a short positon) at a price this afternoon of $10.10
Question: Should the existing covered calls be rolled-up-and-out to the Jan09 $45 strike?
(Note: the Jan09 $45 option was priced at the same time this afternoon at $5.30)
In answering this question, it is important to understand two key concepts:
(1) Notice that there is no mention above of when the existing FLR covered calls were established or the prices of the stock and calls when this covered calls position was originally established. It is only natural for us to want to know what our initial cost basis is in the existing position. However, including this historical information in our decision-making thought process actually distorts that process. What was paid initially and how much profit (or loss) has been achieved so far is irrelevant for us today when analyzing whether to roll-up-and-out or to simply maintain our existing position. The concept of disregarding past transactions and price changes that occur prior to today is a concept referred to by economists as a ‘sunk cost’. A sunk cost is simply a cost that has already been incurred. It’s past. It’s history. In short, it's irrelevant when trying to answer the question today as to whether to simply retain the existing position or whether to roll-up-and-out to another position.
(2) The second key concept used to aid in answering this question is what is referred to as 'average daily rate-of-decay', which is a short phrase that describes the average daily decline in the remaining time value of the call options assuming the existing covered calls position are retained until the options expiration date. For example, as of today there are exactly 15 calendar days until Dec08 options expiration. For the existing FLR Dec08 $35 call, the 'average daily rate-of-decay' of the short call option position is $.036 [total time value of $.54 ($10.10-($44.56-$35.00)) divided by 15 days remaining until Dec08 expiration]. This $.036 per day [which alternatively can be thought of as $3.60 per day per option contract written(since each contract represents 100 shares of stock)] represents the average daily income that will be squeezed out of the remaining time value of the option between today and the option expiration date. This $.036 per day from retaining the existing position is then compared against the 'average daily rate-of-decay' for a new Jan08 $45 strike alternative position. In this case, the 'avg daily rate-of-decay' is $.123 ($5.30 divided by 43 days remaining until Jan09 expiration). This roll-up-and-out alternative has a 241.7% greater average daily rate-of-decay than the existing position if it were to be retained until expiration. This +241.7% increase in the average daily rate-of-decay is a very substantial increase -- so the decision was made today to close out the initial covered calls and simultaneously roll-up-and-out to the Jan09 $45s.
As implied above, the heuristic approach is an ongoing work in progress. As time progresses and additional information and roll-up-and-out alternatives are considered, it is expected that the Covered Calls Advisor will develop a specific threshold that will dictate precisely when to keep the existing position and when it is preferable to roll-up-and-out. For now, a threshold of +200% will be used. That is, a roll-up-and-out transaction will be done if the average daily rate-of-decay is more than 200% higher than that for retaining the existing position.
The transactions history to date for the Fluor covered calls position is as follows:
11/24/08 Initial Stock Purchase Transaction -- Bought 600 FLR @ $35.35
11/24/08 Initial Calls Sold Transaction -- Sold 6 FLR Dec08 $35 Calls @ $3.50
12/03/08 Ex-Dividend of $75.00 ($.125*600 shares)
12/05/08 Roll-Up-And-Out Transaction:
Bought to Close 6 FLR Dec08 $35 Calls @ $10.10
Sold to Open 6 FLR Jan09 $45 Calls @ $5.30
Including the roll-up-and-out transactions today for the Fluor covered calls, the overall performance results(including commissions) through the Jan09 expiration would be as follows:
Stock Purchase Cost: $21,218.95
($35.35*600+$8.95 commission)
Net Profit:
(a) Options Income: -$820.35 (600*($3.50-$10.10+$5.30) - 3*$13.45 commissions)
(b) Dividend Income: +$75.00 ($.125*600 shares)
(c) Capital Appreciation (If stock price unchanged): +$5,508.10
= ($44.56-$35.35)*600 - 2*$8.95 commissions
(d) Capital Appreciation (If exercised): +$5,772.10
= ($45.00-$35.35)*600 - 2*$8.95 commissions
Total Net Profit(If stock price unchanged at $44.56): +$4,762.75
= (-$820.35 +$75.00 +$5,508.10)
Total Net Profit(If stock price exercised at $45.00): +$5,026.75
= (-$820.35 +$75.00 +$5,772.10)
Annualized Return If Unchanged (ARIU): +141.3%
(+$4,762.75/$21,218.95)*(365/54 days)
Annualized Return If Exercised (ARIE) +160.1%
(+$5,026.75/$21,218.95)*(365/54 days)
For comparison, an ARIE of +129.9% would be achieved if the roll-up-and-out transactions had not been made today, and instead the original position had simply been held until Dec08 expiration.
Finally, further analysis will be done in the near future to develop criteria to help determine the trade-offs involved at any given time as to whether an existing covered calls positions should be: (1) retained as is; (2) rolled-up (to a higher strike price in the same expiration month); or (3) rolled-up-and-out (simultaneously to both a higher strike price and a future expiration month). In addition, future posts on this blog will address the decision-making processes needed when the stock price declines and the possibilities of rolling-down or rolling-down-and-out become a consideration.
First, the term 'heuristic' is defined in Webster's dictionary as "involving or serving as an aid to learning, discovery, or problem-solving by experimental and especially trial-and-error methods." So by definition, the criteria developed to determine whether or not to 'roll-up-and-out' a particular covered call will not be a scientifically derived optimal solution, but rather this advisor's best estimate, based on experience with covered calls (especially options premium pricing and options time decay rates) as to what the decision-making rule should be at this time. Over time, it is expected that the decision criteria will be modified as additional information (i.e. feedback) is received that provides additional insights into this question. This continual feedback loop process is consistent with and is a normal feature of the heuristic method.
To determine what the roll-up-and-out policy should be, let's consider an existing covered calls position in the Covered Calls Advisor Portfolio. The existing position was:
Owned 600 shares Fluor(FLR) at a price this afternoon of $44.56.
Had 6 Dec08 $35 calls written (i.e. a short positon) at a price this afternoon of $10.10
Question: Should the existing covered calls be rolled-up-and-out to the Jan09 $45 strike?
(Note: the Jan09 $45 option was priced at the same time this afternoon at $5.30)
In answering this question, it is important to understand two key concepts:
(1) Notice that there is no mention above of when the existing FLR covered calls were established or the prices of the stock and calls when this covered calls position was originally established. It is only natural for us to want to know what our initial cost basis is in the existing position. However, including this historical information in our decision-making thought process actually distorts that process. What was paid initially and how much profit (or loss) has been achieved so far is irrelevant for us today when analyzing whether to roll-up-and-out or to simply maintain our existing position. The concept of disregarding past transactions and price changes that occur prior to today is a concept referred to by economists as a ‘sunk cost’. A sunk cost is simply a cost that has already been incurred. It’s past. It’s history. In short, it's irrelevant when trying to answer the question today as to whether to simply retain the existing position or whether to roll-up-and-out to another position.
(2) The second key concept used to aid in answering this question is what is referred to as 'average daily rate-of-decay', which is a short phrase that describes the average daily decline in the remaining time value of the call options assuming the existing covered calls position are retained until the options expiration date. For example, as of today there are exactly 15 calendar days until Dec08 options expiration. For the existing FLR Dec08 $35 call, the 'average daily rate-of-decay' of the short call option position is $.036 [total time value of $.54 ($10.10-($44.56-$35.00)) divided by 15 days remaining until Dec08 expiration]. This $.036 per day [which alternatively can be thought of as $3.60 per day per option contract written(since each contract represents 100 shares of stock)] represents the average daily income that will be squeezed out of the remaining time value of the option between today and the option expiration date. This $.036 per day from retaining the existing position is then compared against the 'average daily rate-of-decay' for a new Jan08 $45 strike alternative position. In this case, the 'avg daily rate-of-decay' is $.123 ($5.30 divided by 43 days remaining until Jan09 expiration). This roll-up-and-out alternative has a 241.7% greater average daily rate-of-decay than the existing position if it were to be retained until expiration. This +241.7% increase in the average daily rate-of-decay is a very substantial increase -- so the decision was made today to close out the initial covered calls and simultaneously roll-up-and-out to the Jan09 $45s.
As implied above, the heuristic approach is an ongoing work in progress. As time progresses and additional information and roll-up-and-out alternatives are considered, it is expected that the Covered Calls Advisor will develop a specific threshold that will dictate precisely when to keep the existing position and when it is preferable to roll-up-and-out. For now, a threshold of +200% will be used. That is, a roll-up-and-out transaction will be done if the average daily rate-of-decay is more than 200% higher than that for retaining the existing position.
The transactions history to date for the Fluor covered calls position is as follows:
11/24/08 Initial Stock Purchase Transaction -- Bought 600 FLR @ $35.35
11/24/08 Initial Calls Sold Transaction -- Sold 6 FLR Dec08 $35 Calls @ $3.50
12/03/08 Ex-Dividend of $75.00 ($.125*600 shares)
12/05/08 Roll-Up-And-Out Transaction:
Bought to Close 6 FLR Dec08 $35 Calls @ $10.10
Sold to Open 6 FLR Jan09 $45 Calls @ $5.30
Including the roll-up-and-out transactions today for the Fluor covered calls, the overall performance results(including commissions) through the Jan09 expiration would be as follows:
Stock Purchase Cost: $21,218.95
($35.35*600+$8.95 commission)
Net Profit:
(a) Options Income: -$820.35 (600*($3.50-$10.10+$5.30) - 3*$13.45 commissions)
(b) Dividend Income: +$75.00 ($.125*600 shares)
(c) Capital Appreciation (If stock price unchanged): +$5,508.10
= ($44.56-$35.35)*600 - 2*$8.95 commissions
(d) Capital Appreciation (If exercised): +$5,772.10
= ($45.00-$35.35)*600 - 2*$8.95 commissions
Total Net Profit(If stock price unchanged at $44.56): +$4,762.75
= (-$820.35 +$75.00 +$5,508.10)
Total Net Profit(If stock price exercised at $45.00): +$5,026.75
= (-$820.35 +$75.00 +$5,772.10)
Annualized Return If Unchanged (ARIU): +141.3%
(+$4,762.75/$21,218.95)*(365/54 days)
Annualized Return If Exercised (ARIE) +160.1%
(+$5,026.75/$21,218.95)*(365/54 days)
For comparison, an ARIE of +129.9% would be achieved if the roll-up-and-out transactions had not been made today, and instead the original position had simply been held until Dec08 expiration.
Finally, further analysis will be done in the near future to develop criteria to help determine the trade-offs involved at any given time as to whether an existing covered calls positions should be: (1) retained as is; (2) rolled-up (to a higher strike price in the same expiration month); or (3) rolled-up-and-out (simultaneously to both a higher strike price and a future expiration month). In addition, future posts on this blog will address the decision-making processes needed when the stock price declines and the possibilities of rolling-down or rolling-down-and-out become a consideration.
Recommended Reading and Videos
A new section termed 'Recommended Reading and Videos' is now provided in the sidebar of this blog. Each link provides access to investment-related articles and videos the Covered Calls Advisor has found to be especially informative, interesting, and well-written. Some entries will relate specifically to covered calls.
For the thoughtful covered calls investor, these links will provide worthwhile and thought-provoking insights. To that end, please commit to including it as part of your regular (at least once per week) investment-related reading regimen.
Regards,
Jeff
For the thoughtful covered calls investor, these links will provide worthwhile and thought-provoking insights. To that end, please commit to including it as part of your regular (at least once per week) investment-related reading regimen.
Regards,
Jeff
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