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.
