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.
