With the cash from the today's early exercise of Paychex and also from closing out the Cal Dive covered calls position, it was decided to increase the Covered Calls Advisor Portfolio(CCAP) position in ProShares Short S&P 500 ETF (SH) covered calls as follows:
Established ProShares Short S&P 500 ETF (SH) Covered Calls for Nov09:
10/29/09 Bought 300 SH @ $56.05
10/29/09 Sold 3 SH Nov09 $57.00 Calls @ $.90
The ProShares Short S&P 500 ETF position has now been increased so that it now represents approximately 19% of the assets in the Covered Calls Advisor Portfolio(CCAP). As a result, the CCAP for the Nov09 expiration is now 75% long, 19% short, and 6% cash in the underlying equities. The 6% cash buffer is for position management purposes in the event that this advisor decides to transact a net debit spread roll-up of an existing position prior to Nov09 expiration.
Some possible overall performance results(including commissions) for this SH investment would be as follows:
Equity Purchase Cost: $16,823.95
= ($56.05*300+$8.95 commission)
Net Profit:
(a) Options Income: +$258.80
= (300*$.90 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If price unchanged at $56.05): -$8.95
= ($56.05-$56.05)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $57.00): +$276.05
= ($57.00-$56.05)*300 - $8.95 commissions
Total Net Profit(If price unchanged at $56.05): +$249.85
= (+$258.80 +$0.00 -$8.95)
Total Net Profit(If exercised at $57.00): +$535.30
= (+258.80 +$0.00 +$276.05)
Absolute Return if Price Unchanged at $56.05: +1.5%
= +$249.85/$16,823.95
Annualized Return If Unchanged (ARIU): +23.6%
= (+$249.85/$16,823.95)*(365/23 days)
Absolute Return if Exercised at $57.00: +3.2%
= +$535.30/$16,823.95
Annualized Return If Exercised (ARIE): +50.5%
= (+$1,615.60/$33,560.95)*(365/23 days)
The downside breakeven price for this out-of-the-money position is $55.15 ($56.05-$.90), and as such provides a downside profit protection of up to 1.5% below the purchase price.
