Establish United States Natural Gas 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 Natural Gas Fund ETF(UNG) covered calls as follows:

Established the United States Natural Gas Fund ETF(UNG) Covered Calls for Jul09:
06/30/09 Bought 1000 UNG @ $13.92
06/30/09 Sold 10 UNG Jul09 $14.00 Calls @ $.75

UNG invests in near-month futures contracts and tracks the price of natural gas. The Covered Calls advisor believes that natural gas is a cost effective, clean, and abundant alternative fuel and will be an increasingly important resource in fulfilling future U.S. energy needs. At its current price of $3.85, this advisor further believes that Nat Gas now trades at the lower end of its likely price range for the next several months. Therefore, now should be a good time to establish a position in this investment.

Some potential results from this transaction are:
Absolute Return if Stock Price Unchanged at $13.92: +5.4%
Annualized Return If Unchanged (ARIU): +108.4%

Absolute Return if Exercised at $14.00: +6.0%
Annualized Return If Exercised (ARIE): +120.9%

Downside Breakeven Price Point: $13.17
Downside Breakeven Protection: 5.4%

Establish Bank of America Corp Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Bank of America Corp (BAC) covered calls as follows:

Established Bank of America Corp (BAC) Covered Calls for Jul09:
06/30/09 Bought 1000 BAC @ $13.25
06/30/09 Sold 10 BAC Jul09 $13.00 Calls @ $.82

Some potential results from this transaction are:
Absolute Return if Exercised at $13.00: +4.3%
= [($.82-($13.25-$13.00)]/$13.25
Annualized Return If Exercised (ARIE): +87.2%
= [($.82-($13.25-$13.00))/$13.25]*(365/18 days)

Downside Breakeven Price Point: $12.43
Downside Breakeven Protection: 6.2%

Establish Family Dollar Stores Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Family Dollar Stores Inc (FDO) covered calls as follows:

Established Family Dollar Stores Inc(FDO) Covered Calls for Jul09:
06/29/09 Bought 500 FDO @ $28.68
06/29/09 Sold 5 FDO Jul09 $27.50 Calls @ $1.88

Family Dollar Stores, Inc. operates a chain of over 6,000 self-service retail discount stores for low to lower-middle income consumers in the United States.
This Advisor currently has a cautious view towards domestic consumer spending. Consequently, a conservative in-the-money position was established with up to 4.1% [($28.68-$27.50)/$28.68] downside protection available while still achieving the maximum potential annualized return-on-investment of 46.8% from this covered calls position.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for FDO. It scored above the threshold of 20.0 with a Total Points rating of 20.67.




















Note: For expanded view, left click on the spreadsheet above.

Some potential results from this transaction are:
Absolute Return if Exercised at $27.50: +2.4%
= [($1.88-($28.68-$27.50)]/$28.68
Annualized Return If Exercised (ARIE): +46.8%
= [($1.88-($28.68-$27.50))/$28.68]*(365/19 days)

Downside Breakeven Price Point: $26.80
Downside Breakeven Protection: 6.6%

Continuation Transactions -- China Mobile, iShares MSCI Russell 2000 Small Cap Index ETF and Sohu.com

This past Friday was expiration Friday for June 2009. In this Covered Calls Advisor blog's most recent post, it was noted that of the eleven covered calls positions for June 2009, eight were exercised and the stock was called away. The remaining three June09 positions expired out-of-the-money. Today it was decided to retain the stocks of these three holdings (CHL, IWM, and SOHU) and to establish July09 covered calls for each one. The transactions history to date and the profit potential for each of these companies is detailed below.

1. China Mobile LTD ADR (CHL) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 400 shares owned in China Mobile LTD ADR (CHL):
06/24/09 Sell-to-Open (STO) 4 CHL Jul09 $50s @ $1.75
The price of CHL was $49.75 today when this transaction was executed.

The transactions history to date is as follows:
04/20/09 Initial Stock Purchase Transaction -- Bought 400 CHL @ $45.65
04/20/09 Inital Calls Sold Transaction -- Sold 4 CHL May09 $45.00 Calls @ $2.40
A debit-spread transaction was executed as follows:
05/06/09 Buy-to-Close (BTC) 4 CHL May09 $45s @ $3.70
05/06/09 Sell-to-Open (STO) 4 CHL May09 $50s @ $.65
Note: The price of CHL was $48.51 today when the debit-spread was transacted.
05/11/09 Ex-Div of $362.32($.9058 * 400 shares)
05/16/09 May09 Options Expired
Note: The closing price of CHL was $46.06 on expiration Friday.
05/18/09 Sell-to-Open (STO) 4 CHL Jun09 $50s @ $1.25
Note: The price of CHL was $47.30 today when the call options were sold.
06/20/09 Jun09 Options Expired
06/24/09 Sell-to-Open (STO) 4 CHL Jul09 $50s @ $1.75
The price of CHL was $49.75 today when this transaction was executed.

The overall performance results(including commissions) for the CHL transactions would be as follows:
Stock Purchase Cost: $18,268.95
($45.65*400+$8.95 commission)

Net Profit:
(a) Options Income: +$892.20
= (400*($2.40-$3.70+$.65+$1.25+$1.75) - 4*$11.95 commissions)
(b) Dividend Income: +$362.32 ($.9058 * 400 shares)
(c) Capital Appreciation (If stock price unchanged at $49.75): +$1,631.05
= ($49.75-$45.65)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $50.00): +$1,731.05
= ($50.00-$45.65)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $49.75): +$2,885.57
= (+$892.20 +$362.32 +$1,631.05)
Total Net Profit(If stock price exercised at $50.00): +$2,985.57
= (+$892.20 +$362.32 +$1,731.05)

Absolute Return if Stock Price Unchanged at $49.75: +15.8%
= +$2,885.57/$18,268.95
Annualized Return If Stock Price Unchanged (ARIU): +64.8%
= (+$2,885.57/$18,268.95)*(365/89 days)

Absolute Return if Exercised at $50.00: +16.3%
= +$2,985.57/$18,268.95
Annualized Return If Exercised (ARIE): +67.0%
= (+$2,985.57/$18,268.95)*(365/89 days)


2. iShares MSCI Russell 2000 Small Cap Index ETF (IWM) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 500 shares owned in iShares MSCI Russell 2000 Small Cap Index ETF (IWM):
06/24/09 Sell-to-Open (STO) 4 CHL Jul09 $50s @ $1.75
The price of CHL was $49.75 today when this transaction was executed.

The transactions history to date is as follows:
05/21/09 Initial Stock Purchase Transaction -- Bought 500 IWM @ $48.22
05/21/09 Inital Calls Sold Transaction -- Sold 5 IWM Jun09 $47.00 Calls @ $2.87
A roll-up debit-spread transaction was executed as follows:
06/02/09 Buy-to-Close (BTC) 5 IWM Jun09 $47s @ $6.00
06/02/09 Sell-to-Open (STO) 5 IWM Jun09 $53s @ $1.51
Note: The price of IWM was $52.83 today when the debit-spread was transacted.
06/20/09 Jun09 Options Expired
06/24/09 Sell-to-Open (STO) 5 IWM Jul09 $51s @ $1.13
The price of IWM was $50.15 today when this transaction was executed.

The overall performance results(including commissions) for the IWM transactions would be as follows:
Stock Purchase Cost: $24,118.95
= ($48.22*500+$8.95 commission)

Net Profit:
(a) Options Income: -$283.10
= (500*($2.87-$6.00+$1.51+$1.13) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $50.15): +$956.05
= ($50.15-$48.22)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $51.00): +$1,381.05
= ($51.00-$48.22)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $50.15): +$672.95
= (-$283.10 +$0.00 +$956.05)
Total Net Profit(If stock price exercised at $51.00): +$1,097.95
= (-$283.10 +$0.00 +$1,381.05)

Absolute Return if Unchanged at $50.15: +2.8%
= +$672.95/$24,118.95
Annualized Return If Unchanged (ARIU) +17.6%
= (+$672.95/$24,118.95)*(365/58 days)

Absolute Return if Exercised at $51.00: +4.6%
= +$1,097.95/$24,118.95
Annualized Return If Exercised (ARIE) +28.6%
= (+$1,097.95/$24,118.95)*(365/58 days)


3. Sohu.com Inc (SOHU) -- Continuation Transaction
The following transaction was made today to establish a covered calls position against the 400 shares owned in Sohu.com Inc (SOHU):
06/24/09 Sell-to-Open (STO) 4 SOHU Jul09 $65s @ $2.85

The transactions history to date is as follows:
05/19/09 Initial Stock Purchase Transaction -- Bought 400 SOHU @ $54.50
05/19/09 Inital Calls Sold Transaction -- Sold 4 SOHU Jun09 $55.00 Calls @ $3.00
A debit-spread transaction was executed as follows:
05/29/09 Buy-to-Close (BTC) 4 SOHU Jun09 $55s @ $5.84
05/29/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $2.51
Note: The price of SOHU was $59.85 today when the debit-spread was transacted.
06/03/09 Buy-to-Close (BTC) 4 SOHU Jun09 $60s @ $6.15
06/03/09 Sell-to-Open (STO) 4 SOHU Jun09 $65s @ $2.89
Note: The price of SOHU was $65.02 today when the debit-spread was transacted.
06/20/09 Jun09 Options Expired
06/24/09 Sell-to-Open (STO) 4 SOHU Jul09 $65s @ $2.85
Note: The price of SOHU was $64.60 today when the debit-spread was transacted.

The overall performance results(including commissions) for this SOHU covered calls position would be as follows:
Stock Purchase Cost: $21,808.95
($54.50*400+$8.95 commission)

Net Profit:
(a) Options Income: -$343.80
= (400*($3.00-$5.84+$2.51-$6.15+$2.89+$2.85) - 4*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $64.60): +$4,031.05
= ($64.60-$54.50)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $65.00): +$4,191.05
= ($65.00-$54.50)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $64.60): +$3,687.25
= (-$343.80 +$0.00 +$4,031.05)
Total Net Profit(If stock price exercised at $65.00): +$3,847.25
= (-$343.80 +$0.00 +$4,191.05)

Absolute Return if Stock Price Unchanged at $64.60: +16.9%
= +$3,687.25/$21,808.95
Annualized Return If Stock Price Unchanged (ARIU): +102.9%
= (+$3,687.25/$21,808.95)*(365/60 days)

Absolute Return if Exercised at $65.00: +17.6%
= +$3,847.25/$21,808.95
Annualized Return If Exercised (ARIE) +107.3%
= (+$3,847.25/$21,808.95)*(365/60 days)

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). A summary of the transactions today is as follows:

Established iShares MSCI China ETF (FXI) Covered Calls for Jul09:
06/22/09 Bought 1200 FXI @ $36.14
06/22/09 Sold 12 FXI Jul09 $37.00 Calls @ $1.40

The prior FXI covered calls for Jun09 were called away upon last Friday's expiration, and given this advisor's continued bullish viewpoint on China, it was decided to re-establish a covered calls position with FXI for Jul09 expiration. China ranks #1 in this advisor's '2009 Country Value Rankings'(see chart below). Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 6.5% in 2009. This compares with a projection of negative growth this year in most of the world's major countries.
- Estimated inflation of -0.5%
- Price/Book ratio of 2.37 is a below-average valuation relative to other countries (for example, U.S. is currently at 3.41).

Note: left click on image below for an expanded view

The FXI ETF was selected as the primary investment vehicle for achieving wide exposure to China's stock market performance. 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. Since China remains as the Covered Calls Advisor's top investment idea, a major commitment of 17% of the total CCAP is now allocated to FXI covered calls. Moreover, as a direct reflection of this Advisor's current bullishness regarding China, a relatively bullish covered calls position 2.4% [($37.00-$36.14)/$36.14)] out-of-the-money was established despite the CCAP current Overall Market Meter sentiment of 'Neutral'.

Some key indicators for this FXI covered calls position are:

Absolute Return if Stock Price Unchanged at $36.14: +3.9%
= $1.40/$36.14
Annualized Return if Unchanged (ARIU): +54.3%
= ($1.40/$36.14)/(365/26 days)

Absolute Return if Exercised at $37.00: +6.3%
= [$1.40 + ($37.00 - $36.14)]/$36.14
Annualized Return if Exercised(ARIE): +87.8%
= [$1.40 + ($37.00 - $36.14)]/(365/26 days)

Downside Breakeven Price Point: $34.74
Downside Breakeven Protection: 3.9%

June 2009 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of eleven positions with June 2009 expirations, with the following results:
- Eight positions (AMGN, BYI, FLR, HA, HPQ, FXI, NE and 400 shares of SOHU) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for the eight exercised positions were:

Amgen Inc (AMGN): +45.5%
Bally Technologies Inc.(BYI): +51.4%
Fluor Corporation (FLR): +84.2%
Hawaiian Holdings Inc. (HA): +187.5%
Hewlett-Packard Company (HPQ): +65.1%
iShares MSCI China ETF (FXI): +55.3%
Noble Corp (NE): +85.8%
Sohu.com Inc (SOHU): +93.3%

- Three positions in the CCAP (CHL,IWM,and 400 shares of SOHU) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Jul09 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.

Detailed results for the eight positions that were assigned (called away) upon Jun09 expiration are as follows:

1. Amgen Inc(AMGN) -- Closed
The transactions history for the AMGN covered calls was:
03/23/09 Initial Stock Purchase Transaction -- Bought 300 AMGN @ $48.95
03/23/09 Inital Calls Sold Transaction -- Sold 3 AMGN Apr09 $50.00 Calls @ $1.70
04/18/09 Apr09 Options Expired
04/24/09 Continuation Transaction -- Sell-to-Open (STO) 3 AMGN May09 $50s @ $1.05
Note: The price of AMGN was $48.95 today when the call options were sold.
05/16/09 May09 Options Expired
Note: The closing price of AMGN was $48.16 on expiration Friday.
05/18/09 Sell-to-Open (STO) 3 AMGN Jun09 $50s @ $1.12
Note: The price of AMGN was $48.30 today when the call options were sold.
06/20/09 Jun09 Options Exercised (300 shares of AMGN called away)
Note: Closing price of AMGN was $52.34 on expiration Friday.

The overall performance results(including commissions) for the AMGN transactions were as follows:
Stock Purchase Cost: $14,693.95
($48.95*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,127.40 [300*($1.70+$1.05+$1.12) - 3*$11.20 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $50.00): +$501.05
= ($50.00-$48.30)*300 - $8.95 commissions

Total Net Profit: +$1,628.45
= (+$1,127.40 +$0.00 +$501.05)

Absolute Return with Stock Exercised at $50.00: +11.1%
= +$1,628.45/$14,693.95
Annualized Return: +45.5%
= (+$1,628.45/$14,693.95)*(365/89 days)


2. Bally Technologies Inc. (BYI) -- Closed
The transactions history for the BYI covered calls was:
05/21/09 Bought 500 BYI @ $26.63
05/21/09 Sold 5 BYI Jun09 $25.00 Calls @ $2.80
06/20/09 Jun09 Options Exercised (500 shares of BYI called away)
Note: Closing price of BYI was $28.68 on expiration Friday.

The overall performance results(including commissions) for the BYI transactions were as follows:
Stock Purchase Cost: $13,323.95
($26.63*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,387.30 (500*$2.80 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $25.00): -$823.95
= ($25.00-$26.63)*500 - $8.95 commissions

Total Net Profit: +$563.35
= (+$1,387.30 +$0.00 -$823.95)

Absolute Return with Stock Exercised at $25.00: +4.2%
= +$563.35/$13,323.95
Annualized Return: +51.4%
= (+$563.35/$13,323.95)*(365/30 days)

3. Fluor Corporation (FLR) -- Closed
The Transactions History to date for the FLR covered calls is as follows:
04/24/09 Initial Stock Purchase Transaction -- Bought 500 FLR @ $39.975
04/24/09 Inital Calls Sold Transaction -- Sold 5 FLR May09 $40.00 Calls @ $2.40
Roll-Up-and-Out transactions:
05/12/09 Buy-to-Close (BTC) 5 FLR May09 $40.00s @ $6.10
05/12/09 Sell-to-Open (STO) 5 FLR Jun09 $45.00s @ $3.90
06/20/09 Jun09 Options Exercised (500 shares of FLR called away)
Note: Closing price of FLR was $50.27 on expiration Friday.

The overall performance results(including commissions) for the FLR transactions through the Jun09 expiration would be as follows:

Stock Purchase Cost: $19,996.45
($39.975*500+$8.95 commission)

Net Profit:
(a) Options Income: +$61.90 (500*($2.40-$6.10+$3.90) - 3*$12.70 commissions)
(b) Dividend Income: +$62.50 Ex-Div on 6/3/09 ($.125*500 shares)
(c) Capital Appreciation (Stock exercised at $45.00): +$2,503.55
= ($45.00-$39.975)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $45.00): +$2,627.95
= (+$61.90 +$62.50 +$2,503.55)

Absolute Return (Exercised at $45.00): +13.1%
+$2,627.95/$19,996.45
Annualized Return: +84.2%
(+$2,627.95/$19,996.45)*(365/57 days)

4. Hawaiian Holdings Inc. (HA) -- Closed
The Transactions History to date for the HA covered calls is as follows:
05/14/09 Bought 500 HA @ $4.7896
05/14/09 Sold 5 HA Jun09 $5.00 Calls @ $.70
06/20/09 Jun09 Options Exercised (500 shares of HA called away)
Note: Closing price of HA was $5.30 on expiration Friday.

Stock Purchase Cost: $2,403.75
($4.7896*500+$8.95 commission)

Net Profit:
(a) Options Income: +$337.30 (500*$.70 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $5.00): +$96.25
= ($5.00-$4.7896)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $5.00): +$433.55
= (+$337.30 +$0.00 +$96.25)

Absolute Return (Stock Exercised at $5.00): +19.0%
=[$.70+($5.00-$4.7896)]/$4.7896
Annualized Return If Exercised (ARIE): +187.5%
=([$.70+($5.00-$4.7896)]/$4.7896)*(365/37 days)

5. Hewlett-Packard Company (HPQ) -- Closed
The Transactions History to date for the HPQ covered calls is as follows:
05/18/09 Bought 600 HPQ @ $35.28
05/18/09 Sold 6 HPQ Jun09 $36.00 Calls @ $1.40
06/20/09 Jun09 Options Exercised (600 shares of HPQ called away)
Note: Closing price of HPQ was $38.35 on expiration Friday.

Stock Purchase Cost: $17,648.95
($35.28*500+$8.95 commission)

Net Profit:
(a) Options Income: +$687.30 (500*$1.40 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $36.00): +$351.05
= ($36.00-$35.28)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $36.00): +$1,038.35
= (+$687.30 +$0.00 +$351.05)

Absolute Return (Stock Exercised at $36.00): +5.9%
= $1,038.35/$17,648.95
Annualized Return: +65.1%
= ($1,038.35/$17,648.95)*(365/33 days)

6. iShares MSCI China Fund ETF (FXI) -- Closed
The Transactions History to date for the FXI covered calls is as follows:
05/18/09 Bought 1500 FXI @ $34.98
05/18/09 Sold 15 FXI Jun09 $35.00 Calls @ $1.75
06/20/09 Jun09 Options Exercised (1500 shares of FXI called away)
Note: Closing price of FXI was $37.27 on expiration Friday.

Stock Purchase Cost: $52,478.95
($34.98*1500+$8.95 commission)

Net Profit:
(a) Options Income: +$2,604.80 (1500*$1.75 - $20.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $35.00): +$21.05
= ($35.00-$34.98)*1500 - $8.95 commissions

Total Net Profit(Stock exercised at $35.00): +$2,625.85
= (+2,604.80 +$0.00 +$21.05)

Absolute Return (Stock Exercised at $35.00): +5.0%
= $2,635.85/$52,478.95
Annualized Return: +55.3%
= ($2,635.85/$52,478.95)*(365/33 days)

7. Noble Corp (NE) -- Closed
The Transactions History to date for the FXI covered calls is as follows:
05/18/09 Initial Stock Purchase Transaction -- Bought 500 NE @ $29.000
05/18/09 Inital Calls Sold Transaction -- Sold 5 NE Jun09 $27.50 Calls @ $2.52
A debit-spread transaction was executed as follows:
05/28/09 Buy-to-Close (BTC) 5 NE Jun09 $27.50s @ $5.20
05/28/09 Sell-to-Open (STO) 5 NE Jun09 $32.50s @ $1.50
Note: The price of NE was $32.51 today when the debit-spread was transacted.
06/20/09 Jun09 Options Exercised (500 shares of NE called away)
Note: Closing price of NE was $33.47 on expiration Friday.

The overall performance results(including commissions) for the NE transactions were as follows:
Stock Purchase Cost: $14,508.95
($29.00*500+$8.95 commission)

Net Profit:
(a) Options Income: -$615.40
= (500*($2.52-$5.20+$1.50) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $32.50): +$1,741.05
= ($32.50-$29.00)*500 - $8.95 commissions

Total Net Profit(Stock exercised at $32.50): +$1,125.65
= (-$615.40 +$0.00 +$1,741.05)

Absolute Return (Stock Exercised at $32.50): +7.8%
= +$1,125.65/$14,508.95
Annualized Return If Exercised (ARIE) +85.8%
=(+$1,125.65/$14,508.95)*(365/33 days)

8. Sohu.com Inc (SOHU) -- Closed
The Transactions History to date for the SOHU covered calls were as follows:
02/24/09 Bought 400 SOHU @ $44.617
02/24/09 Sold 4 SOHU Mar09 $45.00 Calls @ $3.20
03/21/09 Mar09 Options Expired
03/23/09 Continuation Transaction -- Sell-to-Open (STO) 4 SOHU Apr $45s @ $1.45
Note: The price of SOHU was $40.10 today when the call options were sold.
04/13/09 Buy-to-Close (BTC) 4 SOHU Apr09 $45.00s @ $5.20
04/13/09 Sell-to-Open (STO) 4 SOHU May09 $50.00s @ $4.30
Net Debit-Spread upon Roll-Up-and-Forward was $.90 ($5.20 - $4.30)
Note: The price of SOHU was $49.90 today when the call options were sold.
05/04/09 Buy-to-Close (BTC) 4 SOHU May09 $50s @ $8.95
05/04/09 Sell-to-Open (STO) 4 SOHU May09 $60s @ $1.95
Net Debit-Spread upon Roll-Up was $7.00 ($8.95 - $1.95)
Note: The price of SOHU was $58.65 today when the call options were sold.
05/16/09 May09 Options Expired
Note: The closing price of SOHU was $52.58 on expiration Friday.
05/18/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $1.25
Note: The price of SOHU was $53.98 today when the call options were sold.
06/20/09 Jun09 Options Exercised (400 shares of SOHU called away)
Note: Closing price of SOHU was $64.55 on expiration Friday.

The overall performance results(including commissions) for the SOHU transactions are as follows:
Stock Purchase Cost: $17,855.75
($44.617*400+$8.95 commission)

Net Profit:
(a) Options Income: -$852.25 (400*($3.20+$1.45-$5.20+$4.30-$8.95+$1.95+$1.25) - 5*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $60.00): +$6,144.25
= ($60.00-$44.617)*400 - $8.95 commissions

Total Net Profit(Stock exercised at $60.00): +$5,292.00
= (-$852.25 +$0.00 +$6,144.25)

Absolute Return (Stock Exercised at $60.00): +29.6%
= +$5,292.00/$17,855.75
Annualized Return: +93.3%
= (+$5,292.00/$17,855.75)*(365/116 days)

Establish EMCOR Group Inc. Covered Calls

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

Established EMCOR Group Inc(EME) Covered Calls for Jul09:
06/17/09 Bought 500 EME @ $19.81
06/17/09 Sold 5 EME Jul09 $20.00 Calls @ $1.40

EMCOR Group, Inc. is an engineering and construction company that provides electrical and mechanical construction and facilities services worldwide. It engages in the design, integration, installation, start-up, operation, and maintenance of various electrical and mechanical systems; heating, ventilation, air conditioning, and refrigeration; fire protection systems; plumbing systems; and various industrial maintenance services.

Below is this Advisor's 'Buy Alerts' spreadsheet for EMCOR. It scores very well overall at 23.43 total points. Note: Any score above 20 is required for any company to be given further consideration as a potential covered calls investment.

Note: For expanded view, left click on the spreadsheet above.

Some potential results from this transaction are:
Absolute Return if Stock Price Unchanged at $19.81: +7.1%
Annualized Return If Unchanged (ARIU): +83.1%

Absolute Return if Exercised at $20.00: +8.0%
Annualized Return If Exercised (ARIE): +94.5%

Downside Breakeven Price Point: $18.41
Downside Breakeven Protection: 7.1%

Investing Pyramid of Success

Recently, I have been doing some soul-searching related to the topic of investing success by asking myself:
What personal qualities are most essential for achieving success in investing?

Before identifying and discussing these qualities, I'd like to clarify my perception of the phrase "success in investing". How do we measure our "success in investing"?
I am convinced that investing success is not an easily defined concept. In fact, since different people have different goals for their investments -- success will be relative, and that is fine. But irrespective of these differences, I'd encourage you to ponder the following question for yourself: What does "investing success" mean for me? Seriously, take the time to think about it, and then write a sentence that defines investing success for you.

I first began to develop my sense of what "investing success" means for me during a course in Engineering Economics in college. There, I learned about: (1) viewing corporate decision-making in terms of its return-on-investment(ROI); and (2) the power of compound interest; and (3) the concept of 'sunk costs'. Shortly thereafter, I began to grasp the applicability of these business concepts to investing when I read "How to Get Rich; Slowly, But Almost Surely: Adventures in Applying the Decision Sciences" by William Thomas Morris. Professor Morris was Chair of the Department of Industrial Engineering at The Ohio State University. In retrospect, this seems to be a mediocre book at best, but for this budding Industrial Engineer it provided some critically important links between my engineering education and my investing future -- but I digress.

So, my personal statement of "investing success" is:
To achieve long-term outperformance compared with the return-on-investment performance of the overall stock market. I won't be more specific now on what is meant by 'long-term', 'outperformance', or 'overall stock market'. These are topics for another time. But again, I encourage you to develop and then to write your own personal statement that defines what is "investing success" for you. After all, the first step toward achieving our own investing success is to define the goal we are seeking.



My thinking and research on this topic led me to identify five key characteristics that enable investors to achieve a substantial level of success. These characteristics are presented here as a pyramid. You might recall a prior article (Tribute to Coach Wooden) on this blog that described John Wooden's Pyramid of Success. My "Investing Pyramid of Success" is not only a convenient visual way to present the characteristics, but more importantly, it is a continuing tribute to the inspirational legacy of Coach John Wooden.


Each of these five qualities is worthy of extensive analysis and discussion. But I will provide only a brief overview of some essential aspects of each characteristic as they pertain to investing. As you consider each one, think about your own strengths and weaknesses in relation to the skills introduced below. The good news is that each of us has an opportunity to improve our abilities in each area if we are willing to work at it.

1. Analytical Skills -- this area is especially important for covered calls investors. Three key competency categories include:
(a) logical thinking -- an ability to think both comprehensively and objectively.
(b) critical analysis -- an ability to distinguish important and accurate information from irrelevant or incorrect information.
(c) quantitative abilities -- two especially important skills are:
(1) the ability to accurately estimate percent changes in our heads; and
(2) the ability to conceptualize potential outcomes in terms of their relative probabilities.

2. Emotional Maturity -- Along with analytical skills, the second cornerstone competency is Emotional Maturity. This quality encompasses:
(a) taking the emotion out of investing; and
(b) facing reality and dealing with it objectively; and
(c) confidence in our own independent judgment.


3. Curiosity -- The third 'foundational' quality that complements the cornerstone qualities of analytical skills and emotional maturity is curiosity. This ability is demonstrated by an aggressive willingness to learn new things and to build upon our existing knowledge.

4. Discipline -- It is critically important to establish and follow a well-defined and consistently applied investing process. In short, it is better to seek to become an expert in covered calls investing rather than a dilettante in numerous stock and option strategies.

5. Adaptability -- While being 'disciplined' is essential, that does not imply that we should be rigid in our approach. Rather, we should use our 'curiosity' to seek to continually improve upon our own investing processes.

Again, I would strongly encourage you to make an objective self-assessment of your own abilities in each of these areas. Then develop a self-improvement plan that:
- identifies and enables you to focus on a process that will help you achieve your own personalized 'investing success';
- utilizes those key qualities that are already your strengths; and
- work to improve on those personal characteristics that you have identified where you need to improve your abilities.

Hopefully, these comments have provided some food-for-thought as related to your own investing capabilities and processes. As always, your comments and questions are welcomed. Please provide them by clicking the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site.

Best Wishes and Godspeed to All,

Jeff

Roll-Up -- Sohu.com Inc

A Covered Calls Advisor Portfolio (CCAP) covered calls position in Sohu.com Inc(SOHU) was rolled-up today (06/03/09) from the Jun09 $60s to the Jun09 $65s. One-half (four out of eight) of the Sohu.com covered calls were rolled-up today. The other four were left at the $60 strike for the time being. The debit-spread transaction was executed as follows:
06/03/09 Buy-to-Close (BTC) 4 SOHU Jun09 $60s @ $6.15
06/03/09 Sell-to-Open (STO) 4 SOHU Jun09 $65s @ $2.89
Net Debit-Spread upon Roll-Up was $3.26 ($6.15 - $2.89)
Note: The price of SOHU was $65.02 today when the debit-spread was transacted, so the remaining time-value was $1.13 [$6.15-($65.02-$60.00)] when this transaction was executed.

The transactions history to date is as follows:
05/19/09 Initial Stock Purchase Transaction -- Bought 400 SOHU @ $54.50
05/19/09 Inital Calls Sold Transaction -- Sold 4 SOHU Jun09 $55.00 Calls @ $3.00
A debit-spread transaction was executed as follows:
05/29/09 Buy-to-Close (BTC) 4 SOHU Jun09 $55s @ $5.84
05/29/09 Sell-to-Open (STO) 4 SOHU Jun09 $60s @ $2.51
Note: The price of SOHU was $59.85 today when the debit-spread was transacted.
06/03/09 Buy-to-Close (BTC) 4 SOHU Jun09 $60s @ $6.15
06/03/09 Sell-to-Open (STO) 4 SOHU Jun09 $65s @ $2.89
Note: The price of SOHU was $65.02 today when the debit-spread was transacted.

The overall performance results(including commissions) for this SOHU covered calls position would be as follows:
Stock Purchase Cost: $21,808.95
($54.50*400+$8.95 commission)

Net Profit:
(a) Options Income: -$1,471.85
= (400*($3.00-$5.84+$2.51-$6.15+$2.89) - 3*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $65.00): +$4,191.05
= ($65.00-$54.50)*400 - $8.95 commissions

Total Net Profit(If stock price exercised at $65.00): +$2,719.20
= (-$1,471.85 +$0.00 +$4,191.05)

Absolute Return if Exercised at $65.00: +12.5%
= +$2,719.20/$21,808.95
Annualized Return If Exercised (ARIE) +142.2%
= (+$2,719.20/$21,808.95)*(365/32 days)

It should also be noted that this maximum potential annualized return (after the roll-up) of 142.2% is significantly higher than the 103.3% potential annualized return that would have been achieved if no roll-up transaction had been executed today and if the original position had been allowed to be exercised at the $60.00 strike price upon Jun09 expiration.

Roll-Up -- iShares Russell 2000 Small Cap Index ETF

A Covered Calls Advisor Portfolio (CCAP) covered calls position in iShares Russell 2000 Small Cap Index ETF (IWM) was rolled-up today (06/02/09) from the Jun09 $47s to the Jun09 $53s. The debit-spread transaction was executed as follows:
06/02/09 Buy-to-Close (BTC) 5 IWM Jun09 $47s @ $6.00
06/02/09 Sell-to-Open (STO) 5 IWM Jun09 $53s @ $1.51
Net Debit-Spread upon Roll-Up was $4.49 ($6.00 - $1.51)
Note: The price of IWM was $52.83 today when the debit-spread was transacted, so the remaining time-value was $.17 [$6.00-($52.86-$47.00)] when this transaction was executed.

The transactions history to date is as follows:
05/21/09 Initial Stock Purchase Transaction -- Bought 500 IWM @ $48.22
05/21/09 Inital Calls Sold Transaction -- Sold 5 IWM Jun09 $47.00 Calls @ $2.87
A roll-up debit-spread transaction was executed as follows:
06/02/09 Buy-to-Close (BTC) 5 IWM Jun09 $47s @ $6.00
06/02/09 Sell-to-Open (STO) 5 IWM Jun09 $53s @ $1.51
Note: The price of IWM was $52.83 today when the debit-spread was transacted.

The overall performance results(including commissions) for the IWM transactions would be as follows:
Stock Purchase Cost: $24,118.95
= ($48.22*500+$8.95 commission)

Net Profit:
(a) Options Income: -$835.40
= (500*($2.87-$6.00+$1.51) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $52.83): +$2,296.05
= ($52.83-$48.22)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $53.00): +$2,381.05
= ($53.00-$48.22)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $52.83): +$1,460.65
= (-$835.40 +$0.00 +$2,296.05)
Total Net Profit(If stock price exercised at $53.00): +$1,545.65
= (-$835.40 +$0.00 +$2,381.05)

Absolute Return if Unchanged at $52.83: +6.1%
= +$1,460.65/$24,118.95
Annualized Return If Unchanged (ARIU) +73.7%
= (+$1,460.65/$24,118.95)*(365/30 days)

Absolute Return if Exercised at $53.00: +6.4%
= +$1,545.65/$24,118.95
Annualized Return If Exercised (ARIE) +78.0%
= (+$1,545.65/$24,118.95)*(365/30 days)

It should also be noted that this maximum potential annualized return (after the roll-up) of 78.0% is substantially higher than the 41.6% potential annualized return that would have been achieved if no roll-up transaction had been executed today and if the original position had been allowed to be exercised at the original $47.00 strike price upon Jun09 expiration.