Returns -- January 2010

The Covered Calls Advisor Portfolio (CCAP) underperformed the Russell 3000 benchmark in January 2010. The primary reason for this result is the significant overweighting of emerging markets (especially China) in the portfolio. This asset class underperformed in January primarily as a result of the adverse market reaction to credit tightening in China. Despite this result in January, the Covered Calls Advisor continues to overweight emerging markets as this advisor's country rankings indicate that China continues to be value-priced relative to the major developed markets of the U.S. and Europe. The Covered Calls Advisor Portfolio results for January 2010 as well as the historical results for prior years in comparison with the Russell 3000 buy-and-hold benchmark are as follows:

1. January 2010 Results:

CCAP Absolute Return (Jan 1st through Jan 31st, 2010)
= -4.98%
($261,772.44-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) January 2010 Absolute Return = -3.72%
($62.85-$65.28)/$65.28


2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) was begun in September, 2007. The annualized returns achieved for 2007, 2008, and 2009 compared with the Russell 3000 benchmark results were as follows:

As a reminder, the 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.

Despite the bearish market in January, the Covered Calls Advisor's current Overall Market Meter rating (shown in the right sidebar near the top of this page) remains at "SLIGHTLY BULLISH". The corresponding investing strategy is to on-average sell 2% out-of-the-money covered calls for the nearest expiration month (now Feb2010).

If you have any comments or questions, please feel free to submit them -- they are always welcomed. Click the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site. Also, if you haven't already done so, consider joining the justcoveredcalls Yahoo!Group site (link), which is a very good forum for anyone interested in additional information and discussion related to covered calls.


Regards and Godspeed,

Jeff

Establish Intel Corp. Covered Calls

A new covered call position was established today in the Covered Calls Advisor Portfolio(CCAP) with Intel Corp.(INTC) as follows:

01/27/2010 Bought 300 INTC @ $20.03
01/27/2010 Sold 3 INTC Feb2010 $20.00 Call Options @ $.52

Intel Corp.(INTC) is the world's leading semiconductor producer and has been the industry leader since the inception of the personal computer. Intel produces products for many facets of advanced technology including flash memory products, motherboards, wired and wireless connectivity products and networked storage products. Its 2009 annual sales exceeded $35 billion and should approximate $40 billion this year. This sales increase coupled with an operating margin approaching 62% should enable Intel to achieve all-time record earnings per share approaching $2.00 in 2011. Applying a P/E of 15 against these earnings implies a reasonable target price potential of $30, which represents a very attractive 50% annualized return potential for the underlying stock.

Although the Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 19.79 is slightly below the desired threshold of 20 points, it was decided that the extraordinary earnings growth potential this year was sufficient to warrant a purchase commitment at this time.





















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


The potential overall performance results(including commissions) for the INTC transactions would be as follows:
Stock Purchase Cost: $6,017.95
= ($20.03*300+$8.95 commission)

Net Profit:
(a) Options Income: +$144.80
= (300*$.52 - $11.20 commissions)
(b) Dividend Income: +$47.25 = Ex-dividend of $.1575 * 300 shares
(c) Capital Appreciation (If exercised at $20.00): -$17.95
= ($20.00-$20.03)*300 - $8.95 commissions

Total Net Profit(If stock exercised at $20.00): +$174.10
= (+$144.80 +$47.25 -$17.95)

Absolute Return if Exercised at $20.00: +2.9%
= +$174.10/$6,017.95
Annualized Return If Exercised (ARIE) +44.0%
= (+$174.10/$6,017.95)*(365/24 days)

The returns shown above are based on capturing Intel's $.1575 per share ex-dividend of 2/03/2010 and being assigned upon Feb2010 expiration. If the price of Intel increases significantly during the next week such that the call option owner exercises early to capture the dividend and the shares are called away on 2/2/2010, then the overall annualized returns would be substantially higher. Thus, and as is often the case, being assigned early would be a very desirable outcome for this Covered Calls Advisor position.

Establish Potash Corp of Saskatchewan Inc. Covered Call

A new covered call position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Potash Corp of Saskatchewan Inc.(POT) as follows:

01/25/2010 Bought 100 POT @ $109.15
01/25/2010 Sold 1 POT Feb2010 $115.00 Call Option @ $3.10

This is a return to a successful covered calls position taken in POT early in 2009. The rationale in support of re-establishing an investment in Potash is similar to that stated previously, namely:
Potash Corp (POT) is the world's largest producer of crop fertilizers and they produce each of the three primary fertilizers (potash, phosphates, and nitrogen-based products). Of these three, potash is the most beneficial to farmers in terms of enhancing the productivity of arable acreage; consequently potash is in greatest demand and has the best profit margins of the three fertilizers. Potash Corp. ranks #1 in the world in potash production with about 22% of the world's supply. They are, therefore, in a very enviable position because of the relatively high cost to establish new potash production mines. Although the price of potash has been relatively weak as a result of the worldwide recession, economic growth this year bodes well for both demand and pricing power. As the developing world (Especially China and India) continues to gradually improve their standard of living and their diets (including more protein), the ongoing strong demand for more and more fertilizer will continue. Consequently, prices for corn, soybeans, and wheat are likely now to be reaching the lower end of their future price range, and POT is well positioned for a very nice price rebound when crop prices firm up. Potash Corp is very well managed, and maintains their commitment to steadily increasing production capacity to meet the growing demand while maintaining good profit margins and a strong balance sheet. Finally, there is good value in the company's current stock price when it is evaluated in relation to key financial ratio metrics (including P/E ratio, free cash flow, and return-on-equity among others).

Some possible overall performance results(including commissions) for the POT transactions would be as follows:
Stock Purchase Cost: $10,923.95
= ($109.15*100+$8.95 commission)

Net Profit:
(a) Options Income: +$300.30
= (100*$3.10 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $109.15):
-$8.95 = ($109.15-$109.15)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $115.00): +$576.05
= ($115.00-$109.15)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $109.15): +$291.35
= (+$300.30 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $115.00): +$876.35
= (+$300.30 +$0.00 +$576.05)

Absolute Return if Unchanged at $109.15: +2.7%
= +$291.35/$10,923.95
Annualized Return If Unchanged (ARIU) +37.4%
= (+$291.35/$10,923.95)*(365/26 days)

Absolute Return if Exercised at $115.00: +8.0%
= +$876.35/$10,923.95
Annualized Return If Exercised (ARIE) +112.6%
= (+$876.35/$10,923.95)*(365/26 days)

Establish Hewlett-Packard Company Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Hewlett-Packard Company (HPQ) covered calls as follows:

Established Hewlett-Packard Company(HPQ) Covered Calls for Feb2010:
01/22/2010 Bought 300 HPQ @ $49.71
01/25/2010 Sold 3 HPQ Feb2010 $50.00 Calls @ $1.62
Note: The price of HPQ was $50.19 today when the call options were sold.

The stock purchase was transacted late Friday afternoon. At that time a day-trade order to sell 3 call options at $1.52 was placed, but with the market's continued decline into the close the order did not execute. Fortunately, with the market's bullish opening this morning, I was able to sell the options for $1.62.

Hewlett-Packard is a leading worldwide provider of personal computers, printers, and servers. With their 2008 acquisition of EDS they are now also a leading provider of information technology services. Their 2009 acquisition of 3Com is also viewed as a strategically savvy acquisition related to their network services offerings. The company has demonstrated continual improvement in its operating performance under the excellent leadership of CEO, Mark Hurd. Despite 2009's impressive stock performance, HPQ's financials and fundamental financial metrics remain attractive. With both stock advisory services used by the Covered Calls Advisor (Schwab Equity Ratings and MarketGrader.com) currently rating HPQ as a "Buy", and with this advisor's "Buy Alerts" spreadsheet total points above the threshold of 20.0 total points, it was decided to add HPQ to the CCAP at this time.

Some possible overall performance results(including commissions) for the HPQ transactions would be as follows:
Stock Purchase Cost: $14,921.95
= ($49.71*300+$8.95 commission)

Net Profit:
(a) Options Income: +$474.80
= (300*$1.62 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $49.71):
-$8.95 = ($49.71-$49.71)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $50.00): +$78.05
= ($50.00-$49.71)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $49.71): +$465.85
= (+$474.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $50.00): +$552.85
= (+$474.80 +$0.00 +$78.05)

Absolute Return if Unchanged at $49.71: +3.1%
= +$465.85/$14,921.95
Annualized Return If Unchanged (ARIU) +39.3%
= (+$465.85/$14,921.95)*(365/29 days)

Absolute Return if Exercised at $50.00: +3.7%
= +$552.85/$14,921.95
Annualized Return If Exercised (ARIE) +46.6%
= (+$552.85/$14,921.95)*(365/29 days)

Continuation Transaction -- Aspen Insurance Holdings Inc.

Today, the Covered Calls Advisor Portfolio(CCAP) established a covered calls position in Aspen Insurance Holdings Inc.(AHL) by selling three Mar2010 options against the 300 shares owned in Aspen Insurance Holdings Inc. as follows:

01/21/2010 Sell-to-Open (STO) 3 AHL Mar2010 $30.00s @ $.35

The transactions history to date is as follows:
10/20/09 Bought 300 AHL @ $28.20
10/20/09 Sold 3 AHL Nov09 $30.00 Calls @ $.35
11/06/09 Ex-Dividend $45.00 = $.15*300 shares
11/21/09 Nov09 Options Expired
01/21/2010 Sell-to-Open (STO) 3 AHL Mar2010 $30.00s @ $.35
Note: The price of AHL was $27.78 when this call option sale was transacted
02/10/2010 Ex-Dividend $45.00 = $.15*300 shares

Some potential profit profiles for the continuation covered calls position in AHL are as follows:
Stock Purchase Cost: $8,468.95
= ($28.20*300+$8.95 commission)

Net Profit:
(a) Options Income: +$187.60
= (300*($.35+$.35) - 2*$11.20 commissions)
(b) Dividend Income: +$90.00 = 2*$.15*300 shares
(c) Capital Appreciation(If stock price unchanged at $27.78): -$134.95
= ($27.78-$28.20)*300 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $30.00): +$531.05
= ($30.00-$28.20)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $27.78): +$61.65
= (+$187.60 +$90.00 -$134.95)
Total Net Profit(If stock exercised at $30.00): +$808.65
= (+$187.60 +$90.00 +$531.05)

Absolute Return if Stock Price Unchanged at $27.78: +0.7%
= +$61.65/$8,468.95
Annualized Return If Unchanged (ARIU): +1.8%
= (+$61.65/$8,468.95)*(365/151 days)

Absolute Return if Stock Exercised at $30.00: +9.5%
= +$808.65/$8,468.95
Annualized Return If Exercised (ARIE): +23.1%
= (+$808.65/$8,468.95)*(365/151 days)

Establish National Oilwell Varco Inc. Covered Calls

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

Established National Oilwell Varco Inc.(NOV) Covered Calls for Feb2010:
01/20/2010 Bought 300 NOV @ $45.80
01/20/2010 Sold 3 NOV Feb2010 $46.00 Calls @ $1.75

National Oilwell Varco, Inc. designs, constructs, manufactures, and sells systems, components, and products used in oil and gas drilling and production; provides oilfield services and supplies; and distributes products, and provides supply chain integration services to the upstream oil and gas industry worldwide. It serves drilling contractors, shipyards and other rig fabricators, well servicing companies, national oil companies, independent oil and gas companies, supply stores, and pipe-running service providers. It is estimated that 90% of the mobile offshore rig fleet and the majority of the world's larger land rigs use drilling components manufactured by NOV. The company was founded in 1862 and is based in Houston, Texas.

The 'Buy Alerts' spreadsheet below shows that NOV has a 'Total Points' rating of 22.23 which exceeds the desired threshold of 20.0 points for the financial metrics used by the Covered Calls Advisor.





















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


Some possible overall performance results(including commissions) for the NOV transactions would be as follows:
Stock Purchase Cost: $13,748.95
= ($45.80*300+$8.95 commission)

Net Profit:
(a) Options Income: +$513.80
= (300*$1.75 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $45.80):
-$8.95 = ($45.80-$45.80)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $46.00): +$51.05
= ($46.00-$45.80)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.80): +$504.85
= (+$513.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $46.00): +$564.85
= (+$513.80 +$0.00 +$51.05)

Absolute Return if Unchanged at $45.80: +3.7%
= +$504.85/$13,748.95
Annualized Return If Unchanged (ARIU) +43.2%
= (+$504.85/$13,748.95)*(365/31 days)

Absolute Return if Exercised at $46.00: +4.2%
= +$564.85/$13,748.95
Annualized Return If Exercised (ARIE) +48.4%
= (+$564.85/$13,748.95)*(365/31 days)

Establish Market Vectors Russia ETF Covered Calls

Last Friday, the Covered Calls Advisor Portfolio (CCAP) Jan2010 covered calls position in the Market Vectors Russia ETF (RSX) was in-the-money and was called away for a very nice profit. Goldman Sachs views being long Russia equities as one of their top 10 trading ideas for 2010, citing a 25% return potential. So today, this advisor decided to establish a new RSX slightly out-of-the-money covered calls position with a Feb2010 expiration as follows:

Established Market Vectors Russia ETF (RSX) Covered Calls for Feb2010:
01/20/2010 Bought 300 RSX @ $33.68
01/20/2010 Sold 3 RSX Feb2010 $34.00 Calls @ $1.20

Some possible overall performance results(including commissions) for the RSX transactions would be as follows:
Stock Purchase Cost: $10,112.95
= ($33.68*300+$8.95 commission)

Net Profit:
(a) Options Income: +$348.80
= (300*$1.20 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $33.68):
-$8.95 = ($33.68-$33.68)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $34.00): +$87.05
= ($34.00-$33.68)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $33.68): +$339.85
= (+$348.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $34.00): +$435.85
= (+$348.80 +$0.00 +$87.05)

Absolute Return if Unchanged at $33.68: +3.4%
= +$339.85/$10,112.95
Annualized Return If Unchanged (ARIU) +39.6%
= (+$339.85/$10,112.95)*(365/31 days)

Absolute Return if Exercised at $34.00: +4.3%
= +$435.85/$10,112.95
Annualized Return If Exercised (ARIE) +50.7%
= (+$435.85/$10,112.95)*(365/31 days)

Continuation Transactions -- Amgen Inc.(AMGN), Ensco International Inc.(ESV), iShares MSCI Brazil ETF(EWZ), and Sohu.com Inc.(SOHU)

This past Friday was expiration Friday for January 2010 options. In a Covered Calls Advisor's blog recent post, it was noted that of the eleven covered calls positions for January 2010: (1) Three were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Eight positions ended out-of-the-money. Today, it was decided to retain four of these eight out-of-the-money equities (Amgen, Ensco, iShares Brazil ETF, and Sohu.com Inc.) in the CCAP and to establish Feb2010 covered calls positions. Decisions regarding the remaining four equities, to either sell them or to retain them and establish Feb2010 covered calls positions will be made in the next few days and the associated transactions will be posted on this blog site on the same day they occur. Detailed explanations of the covered calls positions established today for AMGN, ESV, EWZ, and SOHU are as follows:

1. Amgen Inc.(AMGN) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Amgen Inc.(AMGN) was out-of-the-money at Jan2010 expiration. Today it was decided to retain the 200 shares of Amgen Inc.(AMGN) and to establish a Feb2010 covered calls position as follows:

01/19/2010 Sell-to-Open (STO) 2 AMGN Feb2010 $57.50s @ $1.45

The transactions history to date for the 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.
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 2 AMGN Jan2010 $57.50s @ $1.14
Note: Price of AMGN was $56.80 when the Jan2010 options were sold.
01/16/2010 Jan2010 Options Expired
01/19/2010 Sell-to-Open (STO) 2 AMGN Feb2010 $57.50s @ $1.45
Note: Price of AMGN was $57.02 when the Feb2010 options were sold.

Some possible overall performance results(including commissions) for the AMGN transactions would be as follows:
Stock Purchase Cost: $11,288.95
= ($56.40*200+$8.95 commission)

Net Profit:
(a) Options Income: +$902.20
= (200*($1.20+$.93+$1.14+$1.45) - 4*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $57.02): +$115.05
= ($57.02-$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 $57.02): +$1,017.25
= (+$902.20 +$0.00 +$115.05)
Total Net Profit(If stock exercised at $57.50): +$1,113.25
= (+$902.20 +$0.00 +$211.05)

Absolute Return if Stock Price Unchanged at $57.02: +9.0%
= +$1,017.25/$11,288.95
Annualized Return If Unchanged (ARIU): +27.2%
= (+$693.70/$11,288.95)*(365/121 days)

Absolute Return if Stock Exercised at $57.50: +9.9%
= (+$1,113.25/$11,288.95)
Annualized Return If Exercised (ARIE): +29.7%
= (+$833.70/$11,288.95)*(365/121 days)


2. Ensco International Inc.(ESV) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Ensco International Inc.(ESV) was out-of-the-money at Jan2010 expiration. Today it was decided to retain the 200 shares of Ensco and to establish a Feb2010 covered calls position as follows:

01/19/2010 Sell-to-Open (STO) 2 ESV Feb2010 $45.00s @ $1.40

The transactions history to date for the covered calls position in ESV is as follows:
12/21/09 Bought 200 ESV @ $42.40
12/21/09 Sold 2 ESV Jan2010 $45.00 Calls @ $.70
01/16/2010 Jan2010 Options Expired
01/19/2010 Sell-to-Open (STO) 2 ESV Feb2010 $45.00s @ $1.40
Note: Price of ESV was $44.22 when the Feb2010 options were sold.

Some possible overall performance results(including commissions) for the ESV transactions would be as follows:
Stock Purchase Cost: $8,488.95
= ($42.40*200+$8.95 commission)

Net Profit:
(a) Options Income: +$399.10
= (200*($.70+$1.40) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $44.22):
+$355.05 = ($44.22-$42.40)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $45.00): +$511.05
= ($45.00-$42.40)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $44.22): +$754.15
= (+$399.10 +$0.00 +$355.05)
Total Net Profit(If stock price exercised at $45.00): +$910.15
= (+$399.10 +$0.00 +$511.05)

Absolute Return if Unchanged at $44.22: +8.9%
= +$754.15/$8,488.95
Annualized Return If Unchanged (ARIU) +53.2%
= (+$120.60/$8,488.95)*(365/61 days)

Absolute Return if Exercised at $45.00: +10.7%
= +$910.15/$8,488.95
Annualized Return If Exercised (ARIE) +64.2%
= (+$640.60/$8,488.95)*(365/61 days)


3. iShares MSCI Brazil ETF(EWZ) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in iShares MSCI Brazil ETF(EWZ) was out-of-the-money at Jan2010 expiration. Today it was decided to retain the 200 shares of iShares MSCI Brazil ETF(EWZ) and to establish a Feb2010 covered calls position as follows:

01/19/2010 Sell-to-Open (STO) 2 EWZ Feb2010 $76.00s @ $1.80

The transactions history to date for the covered calls position in EWZ is as follows:
12/21/09 Bought 200 EWZ @ $74.48
12/21/09 Sold 2 EWZ Jan2010 $76.00 Calls @ $1.67
01/16/2010 Jan2010 Options Expired
01/19/2010 Sell-to-Open (STO) 2 EWZ Feb2010 $76.00s @ $1.80
Note: Price of EWZ was $74.32 when the Feb2010 options were sold.

Some possible overall performance results(including commissions) for the EWZ transactions would be as follows:
Stock Purchase Cost: $14,904.95
= ($74.48*200+$8.95 commission)

Net Profit:
(a) Options Income: +$673.10
= (200*($1.67+$1.80) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $74.32):
-$40.95 = ($74.32-$74.48)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $76.00): +$327.05
= ($76.00-$74.32)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $74.32): +$632.15
= (+$673.10 +$0.00 -$40.95)
Total Net Profit(If stock price exercised at $76.00): +$1,000.15
= (+$673.10 +$0.00 +$327.05)

Absolute Return if Unchanged at $74.32: +4.2%
= +$632.15/$14,904.95
Annualized Return If Unchanged (ARIU) +25.4%
= (+$234.85/$14,904.95)*(365/61 days)

Absolute Return if Exercised at $76.00: +6.7%
= +$1,000.15/$14,904.95
Annualized Return If Exercised (ARIE) +40.2%
= (+$618.60/$14,904.95)*(365/61 days)


4. Sohu.com Inc.(SOHU) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Sohu.com Inc.(SOHU) was out-of-the-money at Jan2010 expiration. Today it was decided to retain the 200 shares of Sohu.com and to establish a Feb2010 covered calls position as follows:

01/19/2010 Sell-to-Open (STO) 2 SOHU Feb2010 $60.00s @ $3.10

The transactions history to date for the 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.
12/19/09 Dec09 Options Expired
12/28/09 Sell-to-Open (STO) 2 SOHU Jan2010 $60.00s @ $.85
Note: Price of SOHU was $57.52 when the Jan2010 options were sold.
01/16/2010 Jan2010 Options Expired
01/19/2010 Sell-to-Open (STO) 2 SOHU Feb2010 $60.00s @ $3.10
Note: Price of SOHU was $60.37 when the Feb2010 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: +$1,598.20
= (200*($3.50+$.75+$.85+$3.10) - 4*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock exercised at $60.00): -$818.95
= ($60.00-$64.05)*200 - $8.95 commissions

Total Net Profit(If stock exercised at $60.00): +$779.25
= (+$1,598.20 +$0.00 -$818.95)

Absolute Return if Stock Exercised at $60.00: +6.1%
= +$779.25/$12,818.95
Annualized Return If Exercised (ARIE): +17.5%
= (+$779.25/$12,818.95)*(365/127 days)

January 2010 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of eleven positions with January 2010 expirations, with the following results:
- Three positions (FUQI, EWY, and RSX) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for the three exercised positions were:

Fuqi International Inc.(FUQI): -40.5%
iShares MSCI South Korea ETF (EWY): +53.7%
Market Vectors Russia ETF (RSX): +65.5%

- Eight positions in the CCAP (AMGN, CHU, ESV, EWZ, FLR, FXI, ITT, and SOHU) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Feb2010 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 three positions that were assigned (called away) upon Jan2010 expiration are as follows:

1. Fuqi International Inc.(FUQI) -- Closed
The transactions history was as follows:
10/16/09 Bought 200 FUQI @ $25.45
10/16/09 Sold 2 FUQI Nov09 $26.00 Calls @ $2.00
11/21/09 Nov09 Options Expired
12/03/09 Sell-to-Open (STO) 2 FUQI Dec09 $22.50s @ $.35
Note: The price of FUQI was $20.84 today when this transaction was made.
12/19/09 Dec09 Options Expired
12/24/09 Sell-to-Open (STO) 2 FUQI Jan2010 $20.00s @ $.70
Note: Price of FUQI was $19.32 when the Jan2010 options were sold.
01/16/2010 Jan2010 Options Exercised (200 shares of FUQI called away)
Note: Closing price of FUQI was $20.73 on expiration Friday.

The overall performance results(including commissions) for the FUQI transactions were as follows:
Stock Purchase Cost: $5,098.95
= ($25.45*200+$8.95 commission)

Net Profit:
(a) Options Income: +$578.65
= (200*($2.00+$.35+$.70) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $20.00): -$1,098.95
= ($20.00-$25.45)*200 - $8.95 commissions

Total Net Profit(Stock exercised at $20.00): -$520.30
= (+$578.65 +$0.00 -$1,098.95)

Absolute Return (Stock Exercised at $20.00): -10.2%
= -$520.30/$5,098.95
Annualized Return: -40.5%
= (-$520.30/$5,098.95)*(365/92 days)

2. iShares MSCI South Korea ETF(EWY) -- Closed
The transactions history was as follows:
11/17/09 Bought 400 EWY @ $45.59
11/17/09 Sold 4 EWY Dec09 $46.00 Calls @ $1.70
12/19/09 Dec09 Options Expired
12/22/09 Sell-to-Open (STO) 4 EWY Jan2010 $47.00s @ $1.00
Note: The price of EWY was $46.35 today when the options were sold.
01/16/2010 Jan2010 Options Exercised (400 shares of EWY called away)
Note: Closing price of EWY was $49.40 on expiration Friday.

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

Net Profit:
(a) Options Income: +$1,056.10
= (400*($1.70+$1.00) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (EWY exercised at $47.00): +$555.05
= ($47.00-$45.59)*400 - $8.95 commissions

Total Net Profit(EWY exercised at $47.00): +$1,611.15
= (+$1,056.10 +$0.00 +$555.05)

Absolute Return (EWY Exercised at $47.00): +8.8%
= +$1,611.15/$18,244.95
Annualized Return: +53.7%
= (+$1,611.15/$18,244.95)*(365/60 days)

3. Market Vectors Russia ETF (RSX) Covered Calls -- Closed
12/21/09 Bought 300 RSX @ $31.32
12/21/09 Sold 3 RSX Jan2010 $32.00 Calls @ $.85
01/16/2010 Jan2010 Options Exercised (300 shares of RSX called away)
Note: Closing price of RSX was $33.81 on expiration Friday.

Stock Purchase Cost: $9,404.95
= ($31.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$243.80
= (300*$.85 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (RSX exercised at $32.00): +$195.05
= ($32.00-$31.32)*300 - $8.95 commissions

Total Net Profit(RSX exercised at $32.00): +$438.85
= (+$243.80 +$0.00 +$195.05)

Absolute Return (RSX Exercised at $32.00): +4.7%
= +$438.85/$9,404.95
Annualized Return: +65.5%
= (+$438.85/$9,404.95)*(365/26 days)

Roll Up and Out -- Noble Corp. (NE)

Today is expiration Friday for January 2010. A decision was made to retain Noble Corp.(NE) in the Covered Calls Advisor Portfolio and to roll-up-and-out to the Feb2010 expiration at the $45.00 strike price. With about 15 minutes remaining in the trading day, the Jan2010 $43.00 covered calls were in-the-money (with NE at $43.67), and since the time value remaining in the options was only $.03 [$.70-($43.67-$43.00)], a roll-up-and-out credit spread transaction was executed as follows:
01/15/2010 Buy-to-Close (BTC) 3 NE Jan2010 $43.00s @ $.70
01/15/2010 Sell-to-Open (STO) 3 NE Feb2010 $45.00s @ $1.30
Note: Net Credit-Spread upon Roll-Up-and-Out was $.60 ($1.30 - $.70)

The transactions history to date for Noble Corp.(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.
11/05/09 Ex-Dividend = $14.70 (300 shares*$.049)
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.
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 3 NE Jan2010 $43.00s @ $.90
Note: Price of NE was $41.75 when the Jan2010 options were sold.
01/15/2010 Buy-to-Close (BTC) 3 NE Jan2010 $43.00s @ $.70
01/15/2010 Sell-to-Open (STO) 3 NE Feb2010 $45.00s @ $1.30
Note: Price of NE was $43.67 when the Feb2010 options were sold.

Some possible overall performance results(including commissions) for the NE transactions would be as follows:
Stock Purchase Cost: $10,202.95
($33.98*300+$8.95 commission)

Net Profit:
(a) Options Income: -$352.20
= (300*($1.30-$5.22+$3.87-$5.60+$1.75+$1.45+$.90-$.70+$1.30) - 6*$11.20 commissions)
(b) Dividend Income: +$14.70
(c) Capital Appreciation (If stock price unchanged at $43.67): +$2,898.05
= ($43.67-$33.98)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $45.00): +$3,297.05
= ($45.00-$33.98)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $43.67): +$2,560.55
= (-$352.20 +$14.70 +$2,898.05)
Total Net Profit(If stock price exercised at $45.00): +$2,959.55
= (-$352.20 +$14.70 +$3,297.05)

Absolute Return if Stock Price Unchanged at $43.67: +25.1%
= +$2,560.55/$10,202.95
Annualized Return If Unchanged (ARIU) +53.6%
= (+$2,560.55/$10,202.95)*(365/171 days)

Absolute Return if Exercised at $45.00: +29.0%
= +$2,959.55/$10,202.95
Annualized Return If Exercised (ARIE) +61.9%
= (+$2,959.55/$10,202.95)*(365/171 days)

Staying Slightly Bullish

Each month during expiration week, the Covered Calls Advisor re-calculates the current values for the nine factors used to determine the "Overall Market Meter" rating. Some of the individual factors have changed from last month but, as shown in the chart below, the new Market Meter Average rating (blue bar at the bottom of the chart) remains unchanged at "Slightly Bullish":





















As shown in the right sidebar, the covered calls investing strategy corresponding to this Slightly Bullish sentiment is to "on-average sell 2% Out-of-the-Money Covered Calls for the nearest expiration month." So as Jan2010 options expire this week, new positions for Feb2010 expiration will be established in accordance with this guideline.

This advisor admits to having hoped that the Overall Market Meter rating would have changed this month -- but the Slightly Bullish overall rating persists. Now I can count on continuing to hear my wife and daughters' oft-repeated (but fortunately good-natured) kidding regarding my Overall Market Meter:
"He's Still Slightly Bullish!"

For a more detailed explanation of each of the Covered Calls Advisor's nine indicators, please refer to this prior blog post on that topic -- link.

Your comments and questions regarding this post are welcomed. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Establish Packaging Corporation of America Covered Calls

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

Established Packaging Corporation of America (PKG) Covered Calls for Jan2010:
01/08/2010 Bought 300 PKG @ $23.89
01/08/2010 Sold 3 PKG Feb2010 $25.00 Calls @ $.80

Packaging Corporation of America produces containerboard and corrugated products in the United States. Its corrugated packaging products include conventional shipping containers used to protect and transport manufactured goods; and multi-color boxes and displays to merchandise the packaged products in retail locations, as well as meat boxes and wax-coated boxes for the agricultural industry. Packaging Corporation offers its products through a direct sales and marketing organization. The company was founded in 1867 and is headquartered in Lake Forest, Illinois.

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 Packaging Corp., it is poised to benefit dramatically from higher containerboard prices while controlling costs from the expected relatively modest increases in its raw material inputs which come almost exclusively from softwood trees (as opposed to the more expensive alternative of recycled boxes). PKG has solidly defensive characteristics since over 80% of revenues come from food and other non-durable categories. As shown in the "Buy Alerts" spreadsheet below, its current fundamentals are strong and it is led by a highly-regarded management team. This advisor believes that there is minimal downside risk for this stock -- so a moderately deep-out-of-the-money (4.4% OTM) covered calls position was established.

The 'Buy Alerts' spreadsheet below shows that PKG has a 'Total Points' rating of 20.04 which meets 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 PKG transactions would be as follows:
Stock Purchase Cost: $7,175.95
= ($23.89*300+$8.95 commission)

Net Profit:
(a) Options Income: +$228.80
= (300*$.80 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $23.89):
-$8.95 = ($23.89-$23.89)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $25.00): +$324.05
= ($25.00-$23.89)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $23.89): +$219.85
= (+$228.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $25.00): +$552.85
= (+$228.80 +$0.00 +$324.05)

Absolute Return if Unchanged at $23.89: +3.1%
= +$219.85/$7,175.95
Annualized Return If Unchanged (ARIU) +26.0%
= (+$219.85/$7,175.95)*(365/43 days)

Absolute Return if Exercised at $25.00: +7.7%
= +$552.85/$7,175.95
Annualized Return If Exercised (ARIE) +65.4%
= (+$552.85/$7,175.95)*(365/43 days)

Returns -- For Calendar Year 2009

Wow! What a difference a year makes!
At the end of 2008, we stated that "we have to go back to the Great Depression to find a stock market performance that was worse than this year." Fortunately, in 2009 the stock market made a comeback. The Russell 3000 benchmark used by the Covered Calls Advisor increased by 25.5% in 2009; which is its best overall result since 2003. In comparison, the Covered Calls Advisor Portfolio increased by 37.9% in 2009, thereby outperforming the Russell 3000 benchmark by 12.4 percentage points (37.9% minus 25.5%).

It is a well-accepted premise that the covered calls investing strategy generally outperforms an overall market benchmark in neutral and bearish years. A slight outperformance by covered calls might also be expected in slightly bullish years. But in a strongly bullish market such as 2009 (when the market benchmark increased by 25.5%), a common belief is that covered calls should underform versus a buy-and-hold benchmark. Thus the Covered Calls Advisor Portfolio's significant outperformance in 2009 is especially satisfying to this advisor.

The Covered Calls Advisor Portfolio (CCAP) was begun in September, 2007. The annualized returns achieved for 2007, 2008, and 2009 compared with the Russell 3000 benchmark results were as follows:




The Covered Calls Advisor's motto is:
"Stick with Covered Calls!"





The underlying premise of this blog is to demonstrate that "with a well-managed covered calls portfolio, we can achieve market-beating returns." However, the annual double-digit percentage points outperformance that has been achieved since this blog was started in 2007 should not be misinterpreted by readers of this blog. The Covered Calls Advisor cautions all readers that the levels of outperformance achieved to-date should not be considered as an expectation as to the level of future outperformance, either by the Covered Calls Advisor Portfolio in particular or by the covered calls strategy in general. Although this advisor continues to expect a disciplined, well-managed covered calls portfolio to outperform the Russell 3000 overall market benchmark over the long-term, it is likely that the long-term outperformance by the Covered Calls Advisor Portfolio will be closer to a mid-single-digits (perhaps +3% to +7%) outperformance rather than the double-digit outperformance that has been achieved each year so far.

As a further caveat to readers of this Covered Calls Advisor blog, I would now like to reiterate the disclaimer always shown in the lower right sidebar:
"Disclaimer: The content of this site is for informational and educational purposes only. If you invest using information contained here, do so at your own risk."

As a reminder, the single measure used by the Covered Calls Advisor to determine overall portfolio investment performance results is called 'Total Account Value Return Percent' -- a simple example demonstrates how this measure 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.

As always, I welcome any comments or questions you might have. 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.


Sincerely Wishing You a Happy, Healthy, and Prosperous New Year in 2010!

Regards and Godspeed to All,
Jeff