Returns -- Through November 2009

This report presents the Covered Calls Advisor Portfolio (CCAP) performance results through November 2009.

1. Month of November 2009 Result:

The Covered Calls Advisor Portfolio increased by 2.41% for the month of November 2009. In comparison, the benchmark Russell 3000 index (IWV) increased by 5.78% for the month.


2. Year-to-Date Through November 2009 Results:

The 2009 Year-to-Date results are as follows:

CCAP Absolute Return (Jan 1st through November 30, 2009) = +34.20%
= ($268,041.81 - $199,733.10)/$199,733.10

Benchmark Russell 3000(IWV) Absolute Return (Jan 1st through November 30,2009) = +22.83%
= ($63.87 - $52.00)/$52.00

For the first eleven months of 2009, the table below shows that CCAP has outperformed the Russell 3000 benchmark by 11.37 percentage points (34.20% - 22.83%):

















3. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) was begun in September, 2007. The annualized returns achieved for 2007 and 2008 compared with the Russell 3000 benchmark results were as follows:








Note: This Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. A simple example demonstrates how it 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.

If you have any comments or questions, please feel free to submit them by clicking the 'comments' link below. If you prefer more confidential correspondence, my email address is listed at the top-right sidebar of this blog site.

Regards and Godspeed,

Jeff

Establish iShares MSCI China ETF Covered Calls

An additional covered calls position was established today in iShares MSCI China ETF (FXI) as follows:

Established iShares MSCI China ETF (FXI) Covered Calls for Dec09:
11/27/09 Bought 400 FXI @ $42.54
11/27/09 Sold 4 FXI Dec09 $44.00 Calls @ $1.13

China continues to rank #1 in this advisor's '2009 Country Value Rankings'.
Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 8.5% in 2009 and 9.0%+ in 2010. This compares with a projection of slightly negative growth this year in most of the world's major developed countries and perhaps 2.0% to 4.0% in 2010.
- Estimated current-year inflation of 0% to 1% in China.
- Price/Book ratio of 3.03 is a below-average valuation relative to many other countries (for example, the U.S. S&P 500 is currently at 3.37).

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 bullish covered calls position(3.4% out-of-the-money) was established. Normally, the Covered Calls Advisor establishes buy/write positions by buying the underlying equity and simultaneously selling the call options. However, because of the news regarding the possible delay in Dubai's debt payments and the associated substantial sell-off at the market's open today, it was decided to leg-in to this covered calls position by buying the 400 shares of FXI at $42.54 soon after the market opened. Ninety minutes later, when FXI had risen to $43.41 the Dec09 $44.00 options were sold at $1.13.

Some possible overall performance results(including commissions) for this FXI investment would be as follows:
Stock Purchase Cost: $17,024.95
= ($42.54*400+$8.95 commission)

Net Profit:
(a) Options Income: +$440.05
= (400*$1.13 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $42.54): -$8.95
= ($42.54-$42.54)*400 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $44.00): +$575.05
= ($44.00-$42.54)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $42.54): +$431.10
= (+$440.05 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $44.00): +$1,015.10
= (+$440.05 +$0.00 +$575.05)

Absolute Return if Stock Price Unchanged at $42.54: +2.5%
= +$431.10/$17,024.95
Annualized Return If Unchanged (ARIU): +42.0%
= (+$431.10/$17,024.95)*(365/22 days)

Absolute Return if Stock Exercised at $44.00: +6.0%
= +$1,015.10/$17,024.95
Annualized Return If Exercised (ARIE): +98.9%
= (+$1,015.10/$17,024.95)*(365/22 days)

The downside breakeven price for this out-of-the-money position is $41.41 ($42.54-$1.13), and as such provides a downside profit protection of up to 2.5% below the purchase price.

Establish Dresser-Rand Group Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Dresser-Rand Group Inc. (DRC) covered calls as follows:

Established Dresser-Rand Group Inc. (DRC) Covered Calls for Dec09:
11/25/09 Bought 300 DRC @ $29.30
11/25/09 Sold 3 DRC Dec09 $30.00 Calls @ $.60

Dresser-Rand Group Inc. manufactures steam and reciprocating compression turbines for the oil, gas, petrochemical and related industries. It also sells replacement and upgrade parts, as well as maintenance, installation, upgrade, overhaul, monitoring and repair services for both its own equipment and the equipment of other manufacturers. The company is the leading supplier of rotating equipment in the U.S. and is one of the top three suppliers worldwide, with manufacturing facilities in the U.S., France, Germany, Norway, India and Brazil.

The 'Buy Alerts' spreadsheet below shows that DRC has a 'Total Points' rating of 20.22 which exceeds the Covered Calls Advisor's desired threshold of 20.0 points.
























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


Some possible overall performance results(including commissions) for the DRC transactions would be as follows:
Stock Purchase Cost: $8,798.95
= ($29.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$168.80
= (300*$.60 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.30):
-$8.95 = ($29.30-$29.30)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $30.00): +$201.05
= ($30.00-$29.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.30): +$159.85
= (+$168.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $30.00): +$369.85
= (+$168.80 +$0.00 +$201.05)

Absolute Return if Unchanged at $29.30: +1.8%
= +$159.85/$8,798.95
Annualized Return If Unchanged (ARIU) +27.6%
= (+$159.85/$8,798.95)*(365/24 days)

Absolute Return if Exercised at $30.00: +4.2%
= +$369.85/$8,798.95
Annualized Return If Exercised (ARIE) +63.9%
= (+$369.85/$8,798.95)*(365/24 days)

Establish Rock-Tenn Co. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Rock-Tenn Co. (RKT) covered calls as follows:

Established Rock-Tenn Co. (RKT) Covered Calls for Dec09:
11/25/09 Bought 300 RKT @ $46.49
11/25/09 Sold 3 RKT Dec09 $50.00 Calls @ $.40

Rock-Tenn Company manufactures and sells packaging products, recycled paperboard, containerboard, bleached paperboard, and merchandising displays worldwide. The Consumer Packaging segment manufactures folding cartons for packaging applications; express mail envelopes for the overnight courier industry; coated recycled and bleached paperboard for manufacturers of folding cartons and other paperboard products; and market pulp. The Corrugated Packaging segment produces linerboard and corrugated medium, corrugated sheets and packaging, and preprinted linerboard for industrial and consumer products manufacturers and corrugated box manufacturers; converts corrugated sheets into corrugated products; and provides structural design and engineering services. The Merchandising Displays segment designs, manufactures, and pre-assembles temporary and permanent promotional point-of-purchase displays for consumer products companies; provides contract packing services, such as multi-product promotional packing and product manipulation; and produces lithographic laminated packaging. The Specialty Paperboard Products segment sells specialty recycled paperboard to manufacturers of solid fiber interior packaging, tubes and cores, and other paperboard products; produces gypsum paperboard liner; converts specialty paperboard into book cover and laminated paperboard products for use in furniture, automotive components, storage, and other industrial products; designs and manufactures fiber partitions, including solid fiber partitions for glass container manufacturers and producers of beer, food, wine, spirits, cosmetics, and pharmaceuticals, and die-cut paperboard components; and manufactures specialty agricultural packaging for certain fruit and vegetable markets and sheeted separation products. It also sells recycled paper to the manufacturers of paperboard, tissue, newsprint, roofing products, and insulation. The company was founded in 1936 and is headquartered in Norcross, Georgia.

Credit Suisse recently issued a very bullish analysis of containerboard stocks in which they highlighted the following catalysts: (1) containerboard pricing is poised to increase as the overall economy improves since the industry is already operating at 95% of capacity while current inventories are at 15-year lows; and (2) analysts' current average earnings estimates are low in comparison to likely results for the next several quarters.
More specifically for Rock-Tenn Co., it is in the midst of a dramatic improvement in free cash flow generation which it is using: (1) to pay shareholders (RKT has already announced a 50% increase in dividends to $.60 annually); and (2) to aggressively pay down the large debt from its 2008 acquisition of Southern Container. Despite its relatively high enterprise value resulting from its current high debt, its stock is now value-priced with a EBIT/EV (Earnings Before Interest and Taxes divided by Enterprise Value) of only 10.0. As such, this advisor believes that there is minimal downside risk for this stock -- so a moderately deep-out-of-the-money covered calls position was established in RKT.

Some possible overall performance results(including commissions) for the RKT transactions would be as follows:
Stock Purchase Cost: $13,955.95
= ($46.49*300+$8.95 commission)

Net Profit:
(a) Options Income: +$108.80
= (300*$.40 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $46.49):
-$8.95 = ($46.49-$46.49)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $50.00): +$1,044.05
= ($50.00-$46.49)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.49): +$99.85
= (+$108.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $50.00): +$1,152.85
= (+$108.80 +$0.00 +$1,044.05)

Absolute Return if Unchanged at $46.49: +0.7%
= +$99.85/$13,995.95
Annualized Return If Unchanged (ARIU) +10.8%
= (+$99.85/$13,995.95)*(365/24 days)

Absolute Return if Exercised at $50.00: +8.2%
= +$1,152.85/$13,995.95
Annualized Return If Exercised (ARIE) +125.3%
= (+$1,152.85/$13,995.95)*(365/24 days)

Establish Aeropostale Inc. Covered Calls

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

Established Aeropostale Inc. (ARO) Covered Calls for Dec09:
11/25/09 Bought 300 ARO @ $30.56
11/25/09 Sold 3 ARO Dec09 $31.00 Calls @ $1.30

Aeropostale, Inc. operates as a mall-based specialty retailer offering proprietary branded, value-priced, active-oriented casual apparel and accessories. Their market is primarily teens between 14 and 17 years old. The company offers a collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, and outerwear; and various accessories including sunglasses, belts, socks, and hats under AEROPOSTALE, AERO, 87, and other related trademarks. It has a very strong competitor in Gap Inc. and to a lesser extent the higher-end teen mall retailers of American Eagle Outfitters and Abercrombie & Fitch. Nevertheless, Standard & Poor's calls Aeropostale "the best performing teen apparel retailer in the mall." Aeropostale operates a total of over 900 stores located almost exclusively in the U.S.

Aeropostale provides both good growth and value characteristics; this year it is continuing its perennial store-for-store sales growth and this has afforded management the opportunity to be selectively less aggressive with promotional markdowns. As a result, merchandise gross margins are likely to increase this year by more than 3.0 percentage points. This, in combination with management's continuing excellent expense controls are resulting in outstanding profitability (measured by return on invested capital) results. Yet at its current price, it is also a compelling value investment since its P/E ratio is below 10.0 based on its expected current year earnings of $3.20 per share. Third quarter earnings will be announced on Dec 2nd, but these results are well known since the company has already announced its sales results and has a tight window of $.90-$.91 for quarterly earnings. The more important announcement that day will be ARO's November sales results; this advisor believes this could be a positive catalyst for the stock price since this year will be compared with the relatively depressed sales levels during last year's credit crisis.

The 'Buy Alerts' spreadsheet below shows that ARO has a 'Total Points' rating of 21.49 which exceeds the Covered Calls Advisor's desired threshold of 20.0 points.





















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


Some possible overall performance results(including commissions) for the ARO transactions would be as follows:
Stock Purchase Cost: $9,176.95
= ($30.56*300+$8.95 commission)

Net Profit:
(a) Options Income: +$378.80
= (300*$1.30 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $30.56):
-$8.95 = ($30.56-$30.56)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $31.00): +$123.05
= ($31.00-$30.56)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $30.56): +$369.85
= (+$378.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $31.00): +$501.85
= (+$378.80 +$0.00 +$123.05)

Absolute Return if Unchanged at $30.56: +4.1%
= +$369.85/$9,176.95
Annualized Return If Unchanged (ARIU) +62.8%
= (+$132.85/$9,176.95)*(365/24 days)

Absolute Return if Exercised at $46.00: +5.5%
= +$501.85/$9,176.95
Annualized Return If Exercised (ARIE) +83.2%
= (+$144.85/$9,176.95)*(365/24 days)

Continuation Transactions to Re-Establish Covered Calls For Seven Holdings

Last Friday was expiration Friday for November 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the seventeen covered calls positions for November 2009: (1) Four were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Thirteen positions ended out-of-the-money. Yesterday it was decided to retain seven equities in the CCAP and to establish Dec09 covered calls positions. The seven equities are Accenture Ltd(ACN), Amgen Inc(AMGN), EMCOR Group(EME), ITT Corporation(ITT), Noble Corporation(NE), Sohu.com Inc(SOHU), and UnitedHealth Group Inc(UNH). The results so far for these seven holdings are as follows:

1. Accenture Ltd.(ACN) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in ACN is as follows:
08/24/09 Bought 300 ACN @ $35.51
08/24/09 Sold 3 ACN Sep09 $35.00 Calls @ $1.15
Roll-Out Transaction:
09/18/09 Buy-to-Close (BTC) 10 ACN Sep09 $35.00s @ $1.10
09/18/09 Sell-to-Open (STO) 10 ACN Oct09 $35.00s @ $1.90
Note: The price of ACN was $36.08 today when this debit-spread was transacted.
10/13/09 Buy-to-Close (BTC) 3 ACN Oct09 $35.00s @ $4.20
10/13/09 Sell-to-Open (STO) 3 ACN Nov09 $40.00s @ $.80
Note: The price of ACN was $39.18 today when this debit-spread was transacted.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 ACN Dec09 $40.00s @ $1.25

Stock Purchase Cost: $10,661.95
= ($35.51*300+$8.95 commission)

Net Profit:
(a) Options Income: -$104.80
= (300*($1.15-$1.10+$1.90-$4.20+$.80+$1.25) - 4*$11.20 commissions)
(b) Dividend Income: +$225.00 ($.75 * 300 shares)
(c) Capital Appreciation (If exercised at $40.00): +$1,338.05
= ($40.00-$35.51)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $40.00): +$1,458.25
= (-$104.80 +$225.00 +$1,338.05)

Absolute Return if Exercised at $40.00: +13.7%
= +$1,458.25/$10,661.95
Annualized Return If Exercised (ARIE): +42.7%
= (+$1,458.25/$10,661.95)*(365/117 days)

2. Amgen Inc.(AMGN) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in AMGN is as follows:
10/22/09 Bought 200 AMGN @ $56.40
10/22/09 Sold 2 AMGN Nov09 $57.50 Calls @ $1.20
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 AMGN Dec09 $57.50s @ $.93
Note: Price of AMGN was $56.15 when the Dec09 options were sold.

Stock Purchase Cost: $11,288.95
= ($56.40*200+$8.95 commission)

Net Profit:
(a) Options Income: +$405.10
= (200*($1.20+$.93) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $56.15): -$58.95
= ($56.15-$56.40)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $57.50): +$211.05
= ($57.50-$56.40)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $56.15): +$346.15
= (+$405.10 +$0.00 -$58.95)
Total Net Profit(If stock exercised at $57.50): +$616.15
= (+$405.10 +$0.00 +$211.05)

Absolute Return if Stock Price Unchanged at $56.15: +3.1%
= +$346.15/$11,288.95
Annualized Return If Unchanged (ARIU): +19.3%
= (+$346.15/$11,288.95)*(365/58 days)

Absolute Return if Stock Exercised at $57.50: +5.5%
= +$616.15/$11,288.95
Annualized Return If Exercised (ARIE): +34.3%
= (+$616.15/$11,288.95)*(365/58 days)

3. EMCOR Group(EME) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in EME is as follows:
10/20/09 Bought 400 EME @ $24.35
10/20/09 Sold 4 EME Nov09 $25.00 Calls @ $.85
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 4 EME Dec09 $25.00s @ $1.25
Note: Price of EME was $25.30 when the Dec09 options were sold.

Stock Purchase Cost: $9,748.95
= ($24.35*400+$8.95 commission)

Net Profit:
(a) Options Income: +$816.10
= (400*($.85+$1.25) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock exercised at $25.00): +$251.05
= ($25.00-$24.35)*400 - $8.95 commissions

Total Net Profit(If stock exercised at $25.00): +$1,067.15
= (+$816.10 +$0.00 +$251.05)

Absolute Return if Stock Exercised at $25.00: +10.9%
= +$1,067.10/$9,748.95
Annualized Return If Exercised (ARIE): +66.6%
= (+$1,067.10/$9,748.95)*(365/60 days)

4. ITT Corporation(ITT) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in ITT is as follows:
10/23/09 Bought 300 ITT @ $55.28
10/23/09 Sold 3 ITT Nov09 $55.00 Calls @ $2.60
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 ITT Jan10 $55.00s @ $.85
Note: Price of ITT was $51.55 when the Jan10 options were sold.

Stock Purchase Cost: $16,592.95
($55.28*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,012.60 (300*($2.60+$.85) - 2*$11.20 commissions)
(b) Dividend Income: +$63.90 ($.213 * 300 shares)
c) Capital Appreciation(If stock price unchanged at $51.55): -$1,127.95
= ($51.55-$55.28)*300 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $55.00): -$92.95
= ($55.00-$55.28)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $51.55): -$51.45
= (+$1,012.60 +$63.90 -$1,127.95)
Total Net Profit(If stock exercised at $55.00): +$983.55
= (+$1,012.60 +$63.90 -$92.95)

Absolute Return if Stock Price Unchanged at $51.55: -0.3%
= -$51.45/$16,592.95
Annualized Return If Unchanged (ARIU): -1.3%
= (-$51.45/$16,592.95)*(365/85 days)

Absolute Return if Stock Exercised at $55.00: +5.9%
= +$983.55/$16,592.95
Annualized Return If Exercised (ARIE): +25.5%
= (+$983.55/$16,592.95)*(365/85 days)

5. Noble Corporation(NE) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in NE is as follows:
09/02/09 Bought 300 NE @ $33.98
09/02/09 Sold 3 NE Sep09 $34.00 Calls @ $1.30
Roll-Up-and-Out Transaction:
09/17/09 Buy-to-Close (BTC) 3 NE Sep09 $34.00s @ $5.22
09/17/09 Sell-to-Open (STO) 3 NE Oct09 $36.00s @ $3.87
Note: The price of NE was $39.19 today when this debit-spread was transacted and the remaining time value in the Sep09 option was only $.03 [$5.22-($39.19-$34.00)].
Roll-Up-and-Out Transaction:
10/16/09 Buy-to-Close (BTC) 3 NE Oct09 $36.00s @ $5.60
10/16/09 Sell-to-Open (STO) 3 NE Nov09 $42.00s @ $1.75
Note: The price of NE was $41.56 today when this transaction occurred.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 3 NE Dec09 $42.00s @ $1.45
Note: Price of NE was $41.30 when the Dec09 options were sold.

The overall performance results(including commissions) for this NE covered calls position would be as follows:
Stock Purchase Cost: $10,202.95
($33.98*300+$8.95 commission)

Net Profit:
(a) Options Income: -$779.80
= (300*($1.30-$5.22+$3.87-$5.60+$1.75+$1.45) - 4*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $41.30): +$2,187.05
= ($41.30-$33.98)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $42.00): +$2,397.05
= ($42.00-$33.98)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $41.30): +$1,407.25
= (-$779.80 +$0.00 +$2,187.05)
Total Net Profit(If stock price exercised at $42.00): +$1,617.25
= (-$779.80 +$0.00 +$2,397.05)

Absolute Return if Stock Price Unchanged at $41.30: +13.8%
= +$1,407.25/$10,202.95
Annualized Return If Unchanged (ARIU) +46.6%
= (+$1,061.45/$10,202.95)*(365/108 days)

Absolute Return if Exercised at $42.00: +15.9%
= +$1,617.25/$10,202.95
Annualized Return If Exercised (ARIE) +53.6%
= (+$1,617.25/$10,202.95)*(365/108 days)

6. Sohu.com Inc.(SOHU) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in SOHU is as follows:
10/16/09 Bought 200 SOHU @ $64.05
10/16/09 Sold 2 SOHU Nov09 $65.00 Calls @ $3.50
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 2 SOHU Dec09 $60.00s @ $.75
Note: Price of SOHU was $55.10 when the Dec09 options were sold.

Some possible overall performance results(including commissions) for the SOHU transactions would be as follows:
Stock Purchase Cost: $12,818.95
= ($64.05*200+$8.95 commission)

Net Profit:
(a) Options Income: +$829.10
= (200*($3.50+$.75) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $55.10):
-$1,798.95 = ($55.10-$64.05)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $60.00): -$818.95
= ($60.00-$64.05)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $55.10): -$969.85
= (+$829.10 +$0.00 -$1,798.95)
Total Net Profit(If stock exercised at $60.00): +$10.15
= (+$829.10 +$0.00 -$818.95)

Absolute Return if Stock Price Unchanged at $55.10: -7.6%
= -$969.85/$12,818.95
Annualized Return If Unchanged (ARIU): -43.1%
= (-$969.85/$12,818.95)*(365/64 days)

Absolute Return if Stock Exercised at $60.00: +0.1%
= +$10.15/$12,818.95
Annualized Return If Exercised (ARIE): +0.5%
= (+$10.15/$12,818.95)*(365/64 days)

7. UnitedHealth Group Inc.(UNH) -- Continuation
The transactions history to date and the profit potential for the continuation covered calls position in UNH is as follows:
09/23/09 Bought 400 UNH @ $27.05
09/23/09 Sold 4 UNH Oct09 $26.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of UNH was $24.45 on expiration Friday.
10/19/09 Sell-to-Open (STO) 4 UNH Nov09 $26.00s @ $.80
The price of UNH was $24.77 today when this transaction was executed.
Roll-Up Transaction:
11/09/09 Buy-to-Close (BTC) 4 UNH Nov09 $26.00s @ $3.15
11/09/09 Sell-to-Open (STO) 4 UNH Nov09 $29.00s @ $.92
Note: Net Debit-Spread upon Roll-Up was $2.23 ($3.15 - $.92) and the price of UNH was $29.02 when this debit-spread was transacted.
11/21/09 Nov09 Options Expired
11/23/09 Sell-to-Open (STO) 4 UNH Dec09 $30.00s @ $.80
Note: Price of UNH was $29.34 when the Dec09 options were sold.

Some potential overall performance results(including commissions) for this UNH covered calls position would be as follows:
Stock Purchase Cost: $10,828.95
= ($27.05*400+$8.95 commission)

Net Profit:
(a) Options Income: +$480.20
= (400*($1.95+$.80-$3.15+$.92+$.80) - 4*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.34):
+$907.05 = ($29.34-$27.05)*400 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $30.00): +$1,171.05
= ($30.00-$27.05)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.34): +$1,387.25
= (+$480.20 +$0.00 +$907.05)
Total Net Profit(If stock exercised at $30.00): +$1,651.25
= (+$480.20 +$0.00 +$1,171.05)

Absolute Return if Stock Price Unchanged at $29.34: +12.8%
= +$1,387.25/$10,828.95
Annualized Return If Unchanged (ARIU): +53.7%
= (+$1,171.05/$10,828.95)*(365/87 days)

Absolute Return if Stock Exercised at $30.00: +15.2%
= +$1,651.25/$10,828.95
Annualized Return If Exercised (ARIE): +64.0%
= (+$1,651.25/$10,828.95)*(365/87 days)

Quidel Corporation (QDEL) -- Closed

Last Friday was expiration Friday for November 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the seventeen covered calls positions for October 2009, four were in-the-money at expiration and were therefore exercised and the stocks were called away, and thirteen positions ended out-of-the-money. Today, it was decided to sell the 300 shares of Quidel Corporation(QDEL) as follows:

1. Quidel Corporation(QDEL) -- Closed
The transactions history was as follows:
10/26/09 Bought 300 QDEL @ $15.10
10/26/09 Sold 3 QDEL Nov09 $15.00 Calls @ $.90
11/21/09 Nov09 Options Expired
11/23/09 Sold 300 QDEL @ $13.26

The overall performance results(including commissions) for the QDEL transactions were as follows:
Stock Purchase Cost: $4,538.95
= ($15.10*300+$8.95 commission)

Net Profit:
(a) Options Income: +$258.80
= (300*$.90 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$560.95
= ($13.26-$15.10)*300 - $8.95 commissions

Total Net Profit: -$302.15
= (+$258.80 +$0.00 -$560.95)

Absolute Return: -6.7%
= -$302.15/$4,538.95
Annualized Return: -86.8%
= (-$302.15/$4,538.95)*(365/28 days)

November 2009 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of seventeen positions with November 2009 expirations, with the following results:
- Four positions (INTC, FXI, EWY, and AMTD) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for the four exercised positions were:

Intel Corporation (INTC): +21.3%
iShares MSCI China ETF (FXI): +43.2%
iShares MSCI South Korea ETF (EWY): +44.8%
TD Ameritrade Holding (AMTD): +52.3%

- Thirteen positions in the CCAP (ACN, AMGN, AHL, CHU, EME, FLR, FUQI, ITT, MFLX, NE, QDEL, SOHU, and UNH) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Dec09 covered call positions. The related transactions will be made this week and the actual transactions will be posted on this blog site on the same day they occur.

Detailed results for the four positions that were assigned (called away) upon Nov09 expiration are as follows:

1. Intel Corporation (INTC) -- Closed
The transactions history was as follows:
10/27/09 Bought 700 INTC @ $19.70
10/27/09 Sold 7 INTC Nov09 $19.00 Calls @ $.88
11/04/09 $98.00 ($.14 * 700 shares) Ex-dividend
11/21/09 Nov09 Options Exercised (700 shares of INTC called away at $19.00)
Note: Closing price of INTC was $19.24 on expiration Friday.

The overall performance results(including commissions) for the INTC transactions are as follows:
Stock Purchase Cost: $13,798.95
($19.70*700+$8.95 commission)

Net Profit:
(a) Options Income: +$601.80 (700*$.88 - $14.20 commissions)
(b) Dividend Income: +$98.00 ($.14 * 700 shares)
(c) Capital Appreciation: -$498.95
= ($19.70-$19.00)*700 - $8.95 commissions

Total Net Profit: +$200.85
= (+$601.80 +$98.00 -$498.95)

Absolute Return: +1.5%
= +$200.85/$13,798.95

Annualized Return: +21.3%
= (+$200.85/$13,798.95)*(365/25 days)


2. iShares MSCI China ETF (FXI) -- Closed
The transactions history was as follows:
10/16/09 Bought 500 FXI @ $43.29
10/16/09 Sold 5 FXI Nov09 $44.00 Calls @ $1.40
10/22/09 Bought 500 FXI @ $43.73
10/22/09 Sold 5 FXI Nov09 $44.00 Calls @ $1.40
11/21/09 Nov09 Options Exercised (1000 shares of FXI called away at $44.00)
Note: Closing price of FXI was $44.60 on expiration Friday.

The overall performance results(including commissions) for the FXI transactions are as follows:
Stock Purchase Cost: $43,527.90
($43.29*500+$43.73*500+$8.95*2 commissions)

Net Profit:
(a) Options Income: +$1,374.60
= [1000*$1.40) - $25.40 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$481.05
= [$44.00-($43.29+$43.73)/2)*1000 - $8.95 commissions

Total Net Profit: +$1,855.65
= (+$1,374.60 +$0.00 +$481.05)

Absolute Return: +4.3%
= +$1,855.65/$43,527.90
Annualized Return: +43.2%
= (+$1,855.65/$43,527.90)*(365/36 days)


3. iShares MSCI South Korea ETF (EWY) -- Closed
The transactions history was as follows:
10/16/09 Bought 400 EWY @ $45.82
10/16/09 Sold 4 EWY Nov09 $46.00 Calls @ $1.90
11/21/09 Nov09 Options Exercised (400 shares of EWY called away at $46.00)
Note: Closing price of EWY was $46.08 on expiration Friday.

The overall performance results(including commissions) for the FXI transactions are as follows:
Stock Purchase Cost: $18,336.95
($45.82*400 +$8.95 commissions)

Net Profit:
(a) Options Income: +$748.05
= [400*$1.90) - $11.95 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$63.05
= ($46.00-$45.82)*400 - $8.95 commissions

Total Net Profit: +$811.10
= (+$748.05 +$0.00 +$63.05)

Absolute Return: +4.4%
= +$811.10/$18,336.95
Annualized Return: +44.8%
= (+$811.10/$18,336.95)*(365/36 days)


4. TD Ameritrade Holding (AMTD) -- Closed
The transactions history was as follows:
10/22/09 Bought 400 AMTD @ $19.70
10/22/09 Sold 4 AMTD Nov09 $20.00 Calls @ $.60
11/21/09 Nov09 Options Exercised (400 shares of AMTD called away at $20.00)
Note: Closing price of AMTD was $20.91 on expiration Friday.

The overall performance results(including commissions) for the AMTD transactions are as follows:
Stock Purchase Cost: $7,888.95
= ($19.70*400+$8.95 commission)

Net Profit:
(a) Options Income: +$228.05
= (400*$.60 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation with Stock Exercised at $20.00: +$111.05
= ($20.00-$19.70)*400 - $8.95 commissions

Total Net Profit: +$339.10
= (+$228.05 +$0.00 +$111.05)

Absolute Return with Stock Exercised at $20.00: +4.3%
= +$339.10/$7,888.95
Annualized Return: +52.3%
= (+$339.10/$7,888.95)*(365/30 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 the iShares MSCI China ETF (FXI) covered calls as follows:


Established iShares MSCI China ETF (FXI) Covered Calls for Dec09:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44

Some possible overall performance results(including commissions) for this FXI investment would be as follows:
Stock Purchase Cost: $27,332.95
= ($45.54*600+$8.95 commission)

Net Profit:
(a) Options Income: +$850.55
= (600*$1.44 - $13.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $45.54): -$8.95
= ($45.54-$45.54)*600 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $46.00): +$267.05
= ($46.00-$45.54)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.54): +$841.60
= (+$850.55 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $46.00): +$1,117.60
= (+$850.55 +$0.00 +$267.05)

Absolute Return if Stock Price Unchanged at $45.54: +3.1%
= +$841.60/$27,332.95
Annualized Return If Unchanged (ARIU): +36.3%
= (+$841.60/$27,332.95)*(365/31 days)

Absolute Return if Stock Exercised at $46.00: +4.1%
= +$1,117.60/$27,332.95
Annualized Return If Exercised (ARIE): +48.1%
= (+$1,117.60/$27,332.95)*(365/31 days)

The downside breakeven price for this out-of-the-money position is $44.10 ($45.54-$1.44), and as such provides a downside profit protection of up to 3.1% below the purchase price.

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

Established the United States Natural Gas Fund (UNG) Covered Calls for Dec09:
11/18/09 Bought 300 UNG @ $8.96
11/18/09 Sold 3 UNG Dec09 $9.00 Calls @ $.51

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 near $4.30, this advisor further believes that Nat Gas now trades at the lower end of its likely price range for the next several months, and that now is a good time to initiate a covered calls position in this investment.

Some possible overall performance results(including commissions) for the UNG transactions would be as follows:
Stock Purchase Cost: $2,696.95
= ($8.96*300+$8.95 commission)

Net Profit:
(a) Options Income: +$141.80
= (300*$.51 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $8.96):
-$8.95 = ($8.96-$8.96)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $9.00): +$3.05
= ($9.00-$8.96)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $8.96): +$132.85
= (+$141.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $9.00): +$144.85
= (+$141.80 +$0.00 +$3.05)

Absolute Return if Unchanged at $8.96: +4.9%
= +$132.85/$2,696.95
Annualized Return If Unchanged (ARIU) +58.0%
= (+$132.85/$2,696.95)*(365/31 days)

Absolute Return if Exercised at $46.00: +5.4%
= +$144.85/$2,696.95
Annualized Return If Exercised (ARIE) +63.2%
= (+$144.85/$2,696.95)*(365/31 days)

The downside breakeven price for this out-of-the-money position is $8.45 ($8.96-$.51), and as such provides a downside profit protection of up to 4.9% below the purchase price.

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 iShares MSCI South Korea ETF (EWY) covered calls as follows:

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Dec09:
11/17/09 Bought 400 EWY @ $45.59
11/17/09 Sold 4 EWY Dec09 $46.00 Calls @ $1.70

EWY is a good investment vehicle for capturing widespread exposure to the diversified South Korean economy and its stock market through a single equity. South Korea is a good value-oriented investment since some traditional value metrics such as P/E and P/Book are significantly less than those of the U.S., while the expectation for GDP growth with low inflation for 2010 also favors South Korea. This investment doubles EWY from 400 to 800 shares owned in the CCAP. Against these 800 shares covered calls have been established by previously selling 4 Nov09 $46 calls and today by selling 4 Dec09 $46 calls.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $18,244.95
= ($45.59*400+$8.95 commission)

Net Profit:
(a) Options Income: +$668.05
= (400*$1.70 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $45.59):
-$8.95 = ($45.59-$45.59)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $46.00): +$155.05
= ($46.00-$45.59)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.59): +$659.10
= (+$668.05 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $46.00): +$823.10
= (+$668.05 +$0.00 +$155.05)

Absolute Return if Unchanged at $45.815: +3.6%
= +$659.10/$18,244.95
Annualized Return If Unchanged (ARIU) +41.2%
= (+$659.10/$18,244.95)*(365/32 days)

Absolute Return if Exercised at $46.00: +4.5%
= +$823.10/$18,244.95
Annualized Return If Exercised (ARIE) +51.5%
= (+$823.10/$18,244.95)*(365/32 days)

ProShares Short S&P 500 ETF (SH) -- Closed

The Covered Calls Advisor Portfolio (CCAP) covered calls position in ProShares Short S&P 500 ETF (SH) was closed out today (11/16/09).

The transactions history was as follows:
10/28/09 Bought 600 SH @ $55.92
10/28/09 Sold 6 SH Nov09 $58.00 Calls @ $.65
10/29/09 Bought 300 SH @ $56.05
10/29/09 Sold 3 SH Nov09 $57.00 Calls @ $.90
11/16/09 Bought to Close 3 SH Nov09 $57.00 Calls @ $.05
11/16/09 Bought to Close 6 SH Nov09 $58.00 Calls @ $.05
11/16/09 Sold 900 SH @ $53.22

The ProShares Short S&P 500 ETF tracks the inverse of the S&P 500 index. As stated when the positions were established: "this approach was done to hedge the overall CCAP to provide a better match with the current Overall Market Meter rating (see upper right sidebar) of "Neutral", whereas the CCAP's normal 100% long equities approach tends to result in a slightly bullish posture." But the overall market has continued its bullishness, so the results from this hedge have been very disappointing. The lesson learned from this investment is to avoid trying to anticipate directional changes in the market and to invest along with the market's overall momentum, which at the present time continues to be bullish.

The overall performance results(including commissions) for the SH transactions were as follows:
Stock Purchase Cost: $50,384.90
($55.92*600+$$56.05*300+$8.95*2 commissions)

Net Profit:
(a) Options Income: +$635.35 [600*$.65 + 300*$.90 - (2*$8.95 + 9*$.75) commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$2,477.95
= [($53.22-$55.92)*600 +($53.22-$56.05)*300 - $8.95 commissions]

Total Net Profit: -$1,842.60
= (+$635.35 +$0.00 -$2,477.95)

Absolute Return = -3.7%
= -$1,842.60/$50,384.90

Annualized Return: -70.3%
= (-$1,842.60/$50,384.90)*(365/19 days)

Roll Down -- Fluor Corporation

Today the existing Fluor Corporation(FLR) covered calls were rolled down from the Nov09 $55.00 to the Nov09 $45.00 strike price. With the price of FLR at $45.04 today, this position met the Covered Calls Advisor's three criteria for transacting a roll down. The three criteria are:
1. Roll down when the current equity price is more than 10% below the current strike price. At $45.04, the price of FLR was 18.1% below the existing strike price of $55.00.
2. And make the roll transactions when the current equity price is very close to the new strike price (within + or - $.25 of the new strike price) -- i.e. very close to at-the-money. At $45.04, the current stock price was very close (only +$.04) from the potential new $45.00 strike price.
3. And roll (within the same expiration month) if more than 1 week (7 calendar days) until expiration. Roll out to the next expiration month if 1 week or less from the current expiration. There are currently 10 calendar days until Nov09 expiration, so a roll down within the same month was executed.

A roll-down credit spread transaction was executed as follows:
11/11/09 Buy-to-Close (BTC) 3 FLR Nov09 $55.00s @ $.05
11/11/09 Sell-to-Open (STO) 3 FLR Nov09 $45.00s @ $1.15
Note: Net Credit-Spread upon Roll-Down was $1.10 ($1.15 - $.05)

09/22/09 Bought 300 FLR @ $54.93
09/22/09 Sold 3 FLR Oct09 $55.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of FLR was $50.24 on expiration Friday.
10/19/09 Sell-to-Open (STO) 3 FLR Nov09 $55.00s @ $.95
The price of FLR was $51.57 today when this transaction was executed.
11/11/09 Buy-to-Close (BTC) 3 FLR Nov09 $55.00s @ $.05
11/11/09 Sell-to-Open (STO) 3 FLR Nov09 $45.00s @ $1.15
Note: Net Credit-Spread upon Roll-Down was $1.10 ($1.15 - $.05)

Some potential overall performance results(including commissions) for this FLR covered calls position would be as follows:
Stock Purchase Cost: $16,487.95
= ($54.93*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,166.40
= (300*($1.95+$.95-$.05+$1.15) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $45.00): -$2,987.95
= ($45.00-$54.93)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $45.00): -$1,821.55
= (+$1,166.40 +$0.00 -$2,987.95)

Absolute Return if Exercised at $45.00: -11.0%
= -$1,821.55/$16,487.95
Annualized Return If Exercised (ARIE) -67.2%
= (-$1,821.55/$16,487.95)*(365/60 days)

Roll Up -- UnitedHealth Group Inc.

Today the existing UnitedHealth Group Inc.(UNH) covered calls were rolled up from the Nov09 $26.00 to the Nov09 $29.00 strike price. With the price of UNH at $29.02 today, this position met the Covered Calls Advisor's three criteria for transacting a roll up. The three criteria are:
1. Roll up when the current equity price is more than 10% above the current strike price. At $29.02, the price of UNH was 11.6% above the existing strike price of $26.00.
2. And make the roll transactions when the current equity price is very close to the new strike price (within + or - $.25 of the new strike price) -- i.e. very close to at-the-money. At $29.02, the current stock price was very close (only +$.02) from the potential new $29.00 strike price.
3. And roll (within the same expiration month) if more than 1 week (7 calendar days) until expiration. Roll out to the next expiration month if 1 week or less from the current expiration. There are currently 12 calendar days until Nov09 expiration, so a roll up within the same month was executed.

A roll-up debit spread transaction was executed as follows:
11/09/09 Buy-to-Close (BTC) 4 UNH Nov09 $26.00s @ $3.15
11/09/09 Sell-to-Open (STO) 4 UNH Nov09 $29.00s @ $.92
Note: Net Debit-Spread upon Roll-Up was $2.23 ($3.15 - $.92)

The transactions history to date is as follows:
09/23/09 Bought 400 UNH @ $27.05
09/23/09 Sold 4 UNH Oct09 $26.00 Calls @ $1.95
10/17/09 Oct09 Options Expired
The closing price of UNH was $24.45 on expiration Friday.
10/19/09 Sell-to-Open (STO) 4 UNH Nov09 $26.00s @ $.80
The price of UNH was $24.77 today when this transaction was executed.
Roll-Up Transaction:
11/09/09 Buy-to-Close (BTC) 4 UNH Nov09 $26.00s @ $3.15
11/09/09 Sell-to-Open (STO) 4 UNH Nov09 $29.00s @ $.92
Note: Net Debit-Spread upon Roll-Up was $2.23 ($3.15 - $.92) and the price of UNH was $29.02 when this debit-spread was transacted.

Some potential overall performance results(including commissions) for this UNH covered calls position would be as follows:
Stock Purchase Cost: $10,828.95
= ($27.05*400+$8.95 commission)

Net Profit:
(a) Options Income: +$172.15
= (400*($1.95+$.80-$3.15+$.92) - 3*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $29.00): +$771.05
= ($29.00-$27.05)*400 - $8.95 commissions

Total Net Profit(If stock price exercised at $29.00): +$943.20
= (+$172.15 +$0.00 +$771.05)

Absolute Return if Exercised at $29.00: +8.7%
= +$943.20/$10,828.95
Annualized Return If Exercised (ARIE) +53.9%
= (+$943.20/$10,828.95)*(365/59 days)

Covered Calls Position Management -- When to Roll

Does covered calls investing have any inherent advantages over a basic buy-and-hold strategy? That is, whenever we analyze our own investing methods, it is important to try to identify advantages that our own methods might have when compared with other approaches. The Covered Calls Advisor's term for this thought process is identifying our 'investable edges'.

Do covered calls provide us with any investable edges? This advisor has observed that many covered calls investors have transitioned to covered calls after having been primarily a stock market buy-and-hold type of investor. This evolution is a natural one because when compared with buy-and-hold, covered calls have an edge for investors who seek to reduce risk while still retaining an opportunity to obtain a competitive overall rate of return. This 'investable edge' is achieved primarily from the immediate options income cash flow that is received each time call options are sold when establishing a covered calls position.

Compared with buy-and-hold, are there any other 'investable edges' that the covered calls investor has? This advisor says "Yes".
Another 'edge' is available from disciplined covered calls position management. The 'investable edge' provided by this active position management can be exploited by the process of 'rolling' an existing covered calls position at an opportune time -- but just when is an opportune time for rolling an existing covered calls position to a new covered calls position? This is the question addressed in the remainder of this article.

First, for the sake of clarity, let's briefly define terms. What exactly is meant by 'rolling' a covered calls position?
On page 70 of ‘New Insights on Covered Call Writing’ by Lehman and McMillan, they succinctly define the relevant terms:
“Rolling: The process of closing the short call position in a covered write and opening (substituting) a different covered call position on the same stock.
Rolling Up: Substituting a call with a higher strike price.
Rolling Down: Substituting a call with a lower strike price.
Rolling Out: Substituting a call with a more distant expiration.”
‘Rolling Up and Out’ would be the combination of simultaneously ‘rolling up’ and ‘rolling out’ -- for example, ‘rolling up and out’ from the XYZ Nov2009 $50s to the XYZ Dec2009 $55s.

Now, the crucial question: When should we 'roll'? This is one of the most popular topics raised by members of the 'justcoveredcalls' Yahoo Group site. Yet despite the numerous occasions that this topic has been broached and the numerous responses posted, this question continues to frequently re-appear -- it just keeps coming back! Why?
I believe it is because it is difficult to develop a set of relatively easy-to-apply decision-making rules for this relatively complex question.
My own thinking on this question is a testimony to this difficulty. In the short two year history of this blog, this will be the Covered Calls Advisor's third post that attempts to specify a workable approach to 'rolling'. Both my first (link#1) and second (link#2) articles on this topic were reasonably solid approaches to aid our decision-making process concerning when to roll an existing covered calls position. But the specific criteria developed were too cumbersome to be followed easily and consistently.

During the past six months, the Covered Calls Advisor has been testing numerous covered calls positions with the objective of developing a set of criteria for rolling that would have the dual benefit of:
(1) achieving net incremental returns in comparison with simply always holding our existing positions until expiration; and
(2) being reasonably easy to apply.
The criteria described below are the result of this effort and are as close as the Covered Calls Advisor can currently come to achieving both objectives.

The guidelines that will now be used by this Covered Calls Advisor to determine when and how to 'roll' any existing covered calls position are as follows:
1. Roll up(down) when the current equity price is more than 10% above(below) the current strike price; and
2. Make the roll transactions when the current equity price is very close to the new strike price (within + or - $.25 of the new strike price) -- i.e. very close to at-the-money; and
3. Roll (within the same expiration month) if more than 1 week (7 calendar days) until expiration. Roll out to the next expiration month if 1 week or less from the current expiration.

In the interest of brevity and simplicity, a detailed explanation of why each of these three guidelines are what they are will not be presented at this time. For now, suffice it to say that when initially establishing a new covered calls position, this advisor advocates establishing positions with short-term (i.e. nearest-month) expirations. Consequently, in a practical sense, the relatively large 10% price change threshold required in #1 above is likely to result in relatively infrequent rolling transactions.

If you have any comments or questions on this article or on any of the three criteria presented, please feel free to submit them by clicking on the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site. Your comments are always welcomed.

Regards and Godspeed,
Jeff