Returns -- Through February 2010

One-month, year-to-date, and prior years performance results of the Covered Calls Advisor Portfolio (CCAP) are presented below. In each instance, CCAP results are compared against the benchmark portfolio which is the Russell 3000 (IWV).

1. One-Month Result (Feb 2010):
The Covered Calls Advisor Portfolio (CCAP) slightly outperformed the Russell 3000 benchmark in February. The CCAP returned +3.97% in February compared with +3.37% for the Russell 3000, a +.60% (3.97%-3.37%) outperformance as follows:

CCAP February 2010 Absolute Return = +3.97%
($272,164.80-$261,772.44)/$261,772.44

Benchmark Comparison: Feb 2010 Absolute Return for Russell 3000 (IWV) = +3.37%
($64.97-$62.85)/$62.85

2. 2010 Year-to-Date Results (Jan 1st through Feb 28th, 2010):
The Covered Calls Advisor Portfolio (CCAP) has underperformed the Russell 3000 benchmark by 0.74% [-1.21%-(-0.47%)] over the first two months of 2010 as follows:

CCAP 2010 Year-to-Date Absolute Return = -1.21%
($272,164.80-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) 2010 Year-to-Date Absolute Return = -0.47%
($64.97-$65.28)/$65.28


3. 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.

As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating remains "SLIGHTLY BULLISH". The corresponding investing strategy is to, on-average, sell 2% out-of-the-money covered calls for the nearest expiration month (now Mar2010).

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

Continuation Transaction -- China Unicom

Today, the Covered Calls Advisor Portfolio(CCAP) established a covered calls position in China Unicom (CHU) by selling five Mar2010 options against the 500 shares owned in CHU as follows:

02/26/2010 Sell-to-Open (STO) 5 CHU Mar2010 $12.50s @ $.25

China Unicom's price performance has been disappointing since its purchase in the CCAP last October. However, CHU had a substantial upside price move today primarily in response to a Deutsche Bank upgrade to "Buy" -- so the Covered Calls Advisor's open order to sell the CHU Mar2010 $12.50s at $.25 was executed today.

The transactions history to date is as follows:
10/22/09 Bought 500 CHU @ $13.73
10/22/09 Sold 5 CHU Nov09 $15.00 Calls @ $.20
11/21/09 Nov09 Options Expired
11/23/09 Sold 5 CHU Dec09 $15.00 Calls @ $.15
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 5 CHU Jan2010 $12.50s @ $.40
Note: Price of CHU was $12.52 when these Jan2010 options were sold.
02/26/2010 Sell-to-Open (STO) 5 CHU Mar2010 $12.50s @ $.25
Note: Price of CHU was $12.10 when these Mar2010 options were sold.

Two possible performance results (including commissions) for the CHU transactions would be as follows:
Stock Purchase Cost: $6,873.95
= ($13.73*500+$8.95 commission)

Net Profit:
(a) Options Income: +$455.20
= 500*($.20+$.15+$.40+$.25) - 4*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $12.10):
-$823.95 = ($12.10-$13.73)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $12.50): -$623.95
= ($12.50-$13.73)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $12.10): -$368.75
= (+$455.20 +$0.00 -$823.95)
Total Net Profit(If stock price exercised at $12.50): -$168.75
= (+$455.20 +$0.00 -$623.95)

Absolute Return if Unchanged at $12.10: -5.4%
= -$368.75/$6,873.95
Annualized Return If Unchanged (ARIU): -13.1%
= (-$368.75/$6,873.95)*(365/149 days)

Absolute Return if Exercised at $12.50: -2.5%
= -$168.75/$6,873.95
Annualized Return If Exercised (ARIE): -6.0%
= (-$168.75/$6,873.95)*(365/149 days)

Establish Neutral Tandem Inc. Covered Calls

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

Established Neutral Tandem Inc. (TNDM) Covered Calls for Apr2010:
02/26/2010 Bought 200 TNDM @ $15.86
02/26/2010 Sold 2 TNDM Apr2010 $17.50 Calls @ $.40

Normally, the Covered Calls Advisor sells the near-month expiration. But with Neutral Tandem currently priced at $15.86, the first out-of-the-money strike price is at $17.50 and its near-month (Mar2010) expiration was bid at only $.15. Since this advisor is very bullish on Neutral Tandem and thus prefers to sell out-of-the-money calls, a decision was made to extend to the Apr2010 expiration and obtain a more satisfactory $.40 call option premium.

Neutral Tandem Inc. was founded in 2003 and is the dominant provider of tandem switching services to competitive carriers in the telecom sector (including wireless, wireline, cable telephone and broadband service providers). Its network enables competitive carriers to interconnect and exchange local and long distance voice traffic between their networks without establishing direct switch-to-switch connections. Neutral Tandem serves as an independent (hence its corporate name of "Neutral") intermediary between its own tandem switches and its customers' switches. Its network automatically switches Internet Protocol (IP)-originated or conventional Time Division Multiplexing (TDM) traffic to terminating carriers, using either protocol. Prior to the introduction of Neutral Tandem’s service, the primary method for competitive carriers to exchange traffic was through the use of the Incumbent Local Exchange Carriers’ (ILECs) tandem switches. Neutral Tandem’s approach enables competitive carriers to benefit from an independently-provided network interconnection solution since its network reduces costs, increases network reliability, decreases competitive tension, and adds network diversity and redundancy.

Neutral Tandem is used by nearly every national and regional wireless carrier, cable and Competitive Local Exchange Carrier(CLEC) in the 137 markets in the U.S. (up from 100 at the end of 2008) that they serve. Their network currently carries over seven billion minutes of traffic per month and they plan to add 36 additional markets in 2010. As one analyst insightfully summarizes: "There simply aren’t too many companies in the world with strong earnings power, high returns on invested capital, no debt, solid management, improving margins and a simple business that is hard for competitors to replicate." While Neutral Tandem's stock is already value-priced, the growth potential of its existing network makes the stock seem underpriced on this basis alone. But an even more dramatic growth driver exists in Neutral Tandem's current development of a new Ethernet eXchange service for data transmission. In this regard, I am impressed with TNDM's CEO, and it is very encouraging to listen to him say that "Neutral Tandem's goal is to address the void in the Ethernet market by providing Ethernet service providers with a more efficient and simplified method of interconnecting on a one-to-many basis. Our new Ethernet eXchange platform will help these service providers accelerate revenue in the rapidly growing Ethernet market." In short, Neutral Tandem will be attempting to duplicate what they've done in the voice market in the potentially much larger (and likely higher-margined) Ethernet data market.

The Covered Calls Advisor readily admits that the technical aspects of these technologies are outside my circle of competence. But I've read enough about the technology to convince myself that Neutral Tandem has a significant competitive advantage in their Ethernet quest compared with any potential competitors based simply on the wide U.S. footprint of their switching network sites. This infrastructure would be costly for potential competitors to duplicate and thus is supportive of the notion that Neutral Tandem can continue to be the low-cost network provider in their niches. To this advisor, Neutral Tandem seems like a good investment value based solely on the continued growth of their existing tandem interconnection services as: (1) their footprint expands even further in the U.S.; (2) mobile phone useage minutes continues to grow; and (3) the potential for growth into international markets is realized. Furthermore, if they are successful in their plans to obtain a critical mass of core customers to utilize their new Ethernet eXchange service network (which will begin its operation later this year), the stock appreciation potential is enormous.

The Covered Calls Advisor's Buy Alerts spreadsheet is shown below. The total points of 17.92 is below the desired "Buy" threshold of 20.0. However, the key value and profitability metrics are strong, and the company's growth potential (as described above), seems compelling.





















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


Two possible overall performance results (including commissions) for the TNDM transactions would be as follows:
Stock Purchase Cost: $3,160.95
= ($15.76*200+$8.95 commission)

Net Profit:
(a) Options Income: +$69.55
= (200*$.40 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $15.76):
-$8.95 = ($15.76-$15.76)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $17.50): +$339.05
= ($17.50-$15.76)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $15.76): +$60.60
= (+$69.55 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $17.50): +$408.60
= (+$69.55 +$0.00 +$339.05)

Absolute Return if Unchanged at $15.76: +2.0%
= +$60.60/$3,160.95
Annualized Return If Unchanged (ARIU): +14.5%
= (+$60.60/$3,160.95)*(365/49 days)

Absolute Return if Exercised at $17.50: +12.9%
= +$408.60/$3,160.95
Annualized Return If Exercised (ARIE): +96.3%
= (+$408.60/$3,160.95)*(365/49 days)

Establish Apple Inc. Covered Call

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of an Apple Inc.(AAPL) covered call as follows:

Established Apple Inc.(AAPL) Covered Call for Mar2010:
02/24/2010 Bought 100 AAPL @ $198.677
02/24/2010 Sold 1 AAPL Mar2010 $210.00 Call @ $1.57

Apple Inc. designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players, as well as sells various related software, services, peripherals, and networking solutions.
The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells various third-party Macintosh, iPhone, and iPod and now iPad compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative customers. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.

The Buy Alerts spreadsheet below shows that Apple exceeds the Covered Calls Advisor's desired "Buy" rating threshold of 20.0 with a Total Points of 21.16.
With the launch of the iPad and the current impressive momentum of both the iPhone and the Mac, at its current price below $200, this high-growth company has become very appealing using this advisor's value-oriented metrics. Because of Apple's $24+ billion in cash and no long-term debt, the enterprise value of AAPL is $155.4 billion which calculates to a P/E ratio of only 14.5 based on this year's expected earnings of about $11.80 per share. This Ex-Cash P/E ratio is likely to expand as Apple continues to grow via its leadership position in the burgeoning mobile internet markets worldwide.





















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


Some possible overall performance results(including commissions) for the AAPL transactions would be as follows:
Stock Purchase Cost: $19,876.65
= ($198.677*100+$8.95 commission)

Net Profit:
(a) Options Income: +$147.30
= (100*$1.57 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $198.677):
-$8.95 = ($198.677-$198.677)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $210.00): +$1,123.35
= ($210.00-$198.677)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $198.677): +$138.35
= (+$147.30 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $210.00): +$1,270.65
= (+$147.30 +$0.00 +$1,123.35)

Absolute Return if Unchanged at $198.677: +0.7%
= +$138.35/$19,876.65
Annualized Return If Unchanged (ARIU) +10.6%
= (+$138.35/$19,876.65)*(365/24 days)

Absolute Return if Exercised at $210.00: +6.4%
= +$1,270.65/$19,876.65
Annualized Return If Exercised (ARIE) +97.2%
= (+$1,270.65/$19,876.65)*(365/24 days)

Continuation Transaction -- Packaging Corporation of America

Today, the Covered Calls Advisor Portfolio(CCAP) established a covered calls position in Packaging Corporation of America(PKG) by selling three Apr2010 options against the 300 shares owned in PKG as follows:

02/23/2010 Sell-to-Open (STO) 3 PKG Apr2010 $25.00s @ $.50

Normally, the Covered Calls Advisor sells the near-month expiration. But with PKG currently priced at $23.38, the first out-of-the-money strike price is at $25.00 and its near-month(Mar2010) expiration was bid at only $.10. Since this advisor continues to be bullish on PKG and wants to maintain it in the CCAP, a decision was made to extend to the Apr2010 expiration and obtain a more satisfactory $.50 call option premium by selling the Apr2010 $25.00 strike.

The transactions history to date is as follows:
01/08/2010 Bought 300 PKG @ $23.89
01/08/2010 Sold 3 PKG Feb2010 $25.00 Calls @ $.80
02/20/2010 Feb2010 Options Expired
02/23/2010 Sell-to-Open (STO) 3 PKG Apr2010 $25.00s @ $.50
Note: Price of PKG was $23.38 when these call options were sold.
03/11/2010 Ex-Dividend of $45.00=$.15*300 shares

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: +$367.60
= 300*($.80+$.50) - 2*$11.20 commissions
(b) Dividend Income: +$45.00 = $.15*300 shares
(c) Capital Appreciation (If stock price unchanged at $23.38):
-$161.95 = ($23.38-$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 $23.38): +$250.65
= (+$367.60 +$45.00 -$161.95)
Total Net Profit(If stock price exercised at $25.00): +$736.65
= (+$367.60 +$45.00 +$324.05)

Absolute Return if Unchanged at $23.38: +3.5%
= +$250.65/$7,175.95
Annualized Return If Unchanged (ARIU): +12.9%
= (+$250.65/$7,175.95)*(365/99 days)

Absolute Return if Exercised at $25.00: +10.3%
= +$736.65/$7,175.95
Annualized Return If Exercised (ARIE): +37.8%
= (+$736.65/$7,175.95)*(365/99 days)

Continuation Transactions -- ITT Corporation and Quanta Services Inc.

This past Friday was options expiration Friday for February 2010. In a recent post on this Covered Calls Advisor's blog, it was noted that of the twelve covered calls positions for February 2010: (1) Two were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Ten positions ended out-of-the-money. Today, it was decided to retain two stocks (ITT Corporation and Quanta Services Inc.) in the CCAP and to establish covered calls positions with them. Decisions regarding the remaining equities currently held in the CCAP (to either sell them or to retain them and establish Mar2010 covered calls positions) will be made this week, 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 ITT and PWR are as follows:

1. ITT Corporation (ITT) -- Continuation
Today it was decided to retain the 300 shares of ITT Corporation (ITT) and to establish an Apr2010 covered calls position as follows:

02/22/2010 Sell-to-Open (STO) 3 ITT Apr2010 $55.00s @ $.55

Normally, the Covered Calls Advisor sells the near-month expiration. But with ITT currently priced at $51.48, the first out-of-the-money strike price is at $55 and its near-month(Mar2010) expiration was bid at only $.15. So a decision was made to extend to the Apr2010 expiration and obtain a more satisfactory $.55 call option premium for selling the Apr2010 $55 strike.

The transactions history to date for ITT is as follows:
10/23/09 Bought 300 ITT @ $55.28
10/23/09 Sold 3 ITT Nov09 $55.00 Calls @ $2.60
11/10/09 Ex-Dividend $63.75 = $.2125 * 300 shares
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.
01/16/2010 Jan2010 Options Expired
02/22/2010 Sell-to-Open (STO) 3 ITT Apr2010 $55.00s @ $.55
03/01/2010 Ex-Dividend $75.00 = $.25 * 300 shares

Some possible overall performance results(including commissions) for the ITT transactions would be as follows:
Stock Purchase Cost: $16,592.95
($55.28*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,166.40 (300*($2.60+$.85+$.55) - 3*$11.20 commissions)
(b) Dividend Income: +$138.75 = ($.2125+$.250) * 300 shares
c) Capital Appreciation(If stock price unchanged at $51.48): -$1,148.95
= ($51.48-$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 $51.48): +$156.20
= (+$1,166.40 +$138.75 -$1,148.95)
Total Net Profit(If stock exercised at $55.00): +$1,212.20
= (+$1,166.40 +$138.75 -$92.95)

Absolute Return if Stock Price Unchanged at $51.48: +0.9%
= +156.20/$16,592.95
Annualized Return If Unchanged (ARIU): +2.0%
= (+156.20/$16,592.95)*(365/176 days)

Absolute Return if Stock Exercised at $55.00: +7.3%
= +$1,212.20/$16,592.95
Annualized Return If Exercised (ARIE): +15.2%
= (+$1,212.20/$16,592.95)*(365/176 days)


2. Quanta Services Inc.(PWR) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Quanta Services Inc.(PWR) was out-of-the-money at Feb2010 expiration. Today it was decided to retain the 300 shares of Quanta Services and to establish a Mar2010 covered calls position as follows:

02/22/2010 Sell-to-Open (STO) 3 PWR Mar2010 $20.00s @ $.35

The transactions history to date for the covered calls position in PWR is as follows:
12/21/09 Bought 300 PWR @ $20.80
12/21/09 Sold 3 PWR Feb2010 $22.50 Calls @ $.50
02/20/2010 Feb2010 Options Expired
02/22/2010 Sell-to-Open (STO) 3 PWR Mar2010 $20.00s @ $.35
Note: Price of PWR was $19.20 today when the Mar2010 call options were sold.
Some possible overall performance results(including commissions) for the PWR transactions would be as follows:
Stock Purchase Cost: $6,248.95
= ($20.80*300+$8.95 commission)

Net Profit:
(a) Options Income: +$232.60
= (300*($.50 +$.35) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $19.20):
-$488.95 = ($19.20-$20.80)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $20.00): -$248.95
= ($20.00-$20.80)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $19.20): -$256.35
= (+$232.60 +$0.00 -$488.95)
Total Net Profit(If stock price exercised at $20.00): -$16.35
= (+$232.60 +$0.00 -$248.95)

Absolute Return if Unchanged at $19.20: -4.1%
= -$256.35/$6,248.95
Annualized Return If Unchanged (ARIU) -16.8%
= (-$256.35/$6,248.95)*(365/89 days)

Absolute Return if Exercised at $20.00: -0.3%
= -$16.35/$6,248.95
Annualized Return If Exercised (ARIE) -1.1%
= (-$16.35/$6,248.95)*(365/89 days)

Establish Gap Inc. Covered Calls

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

Established Gap Inc.(GPS) Covered Calls for Mar2010:
02/22/2010 Bought 300 GPS @ $19.76
02/22/2010 Sold 3 GPS Mar2010 $20.00 Calls @ $.60

The Gap, Inc., is a specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies primarily under the Gap, Old Navy, and Banana Republic brands. It operates over 3,000 stores located primarily in the United States, but also with international locations in Canada, the United Kingdom, France, Ireland, and Japan which account for about 10% of sales. Same-store sales have been trending downward each year since 2004. But the Gap brand and Old Navy have now had positive same-store comparables for the past two consecutive months, something which has not occurred since 2004. In addition, senior management has done a stellar job of gross margin and expense control under the excellent leadership of CEO Glenn Murphy -- and the improving trends in these two areas are likely to continue in 2010. The Buy Alerts spreadsheet below shows that Gap's financials are value-oriented at this time, and the total points rating of 23.06 is well above the Covered Calls Advisor's desired "Buy" threshold of 20.0. If a combination of continued strong expense management (very likely) along with higher same-store comps (reasonably likely) occurs in 2010, then a bullish stock response this year is also very likely.






















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


It should be noted that GPS quarterly earnings will be released this Thursday. As a result of the uncertainty associated with any quarterly earnings report, the options premium is now higher than it would otherwise be if there was not an impending report. Because this advisor is confident that GPS is very likely to meet or exceed the analysts' expected results, it was decided to capture the relatively attractive options premium now available and to establish a covered calls position today, prior to the earnings release later this week.
Some possible overall performance results(including commissions) for the GPS transactions would be as follows:
Stock Purchase Cost: $5,936.95
= ($19.76*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 $19.76):
-$8.95 = ($19.76-$19.76)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $20.00): +$63.05
= ($20.00-$19.76)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $19.76): +$159.85
= (+$168.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $20.00): +$222.90
= (+$168.80 +$0.00 +$63.05)

Absolute Return if Unchanged at $19.76: +2.7%
= +$159.85/$5,936.95
Annualized Return If Unchanged (ARIU) +39.3%
= (+$159.85/$5,936.95)*(365/25 days)

Absolute Return if Exercised at $20.00: +3.7%
= +$220.90/$5,936.95
Annualized Return If Exercised (ARIE) +54.3%
= (+$220.90/$5,936.95)*(365/25 days)

Ensco International Inc.(ESV) -- Closed

This past Friday was expiration Friday for February 2010. In a Covered Calls Advisor's blog recent post, it was noted that of the twelve covered calls positions for February 2010, two were in-the-money at expiration and were therefore exercised and the stocks were called away, and ten positions ended out-of-the-money. Today, it was decided to sell the 200 shares of Ensco International Inc.(ESV) as follows:

1. Ensco International Inc.(ESV) -- Closed
The transactions history was 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.
02/20/2010 Feb2010 Options Expired
02/22/2010 Sold 200 ESV @ $43.80

With the price of oil near $80, it is trading at the upper end of its recent range. Since the CCAP is currently strongly overweighted in oil equities, it was decided to lighten up slightly on energy-related exposure in the portfolio. Although ESV is transitioning to a greater exposure to the greater growth opportunity in deepwater drilling, its current mix remains heavily jackup oriented. In addition, senior management is soon transitioning to its new London headquarters and this could provide a slightly disruptive short-term impact. Additionally, this advisor views ESV's management as somewhat less capable than other energy-related companies in the portfolio (especially vis-a-vis Noble Corp's management).

The overall performance results(including commissions) for the ESV transactions were 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 (Stock sold at $43.80): +$271.05
= ($43.80-$42.40)*200 - $8.95 commissions

Total Net Profit(Stock sold at $43.80): +$670.15
= (+$399.10 +$0.00 +$271.05)

Absolute Return (Stock sold at $43.80): +7.9%
= +$670.15/$8,488.95
Annualized Return If Unchanged (ARIU) +45.7%
= (+$670.15/$8,488.95)*(365/63 days)

February 2010 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of twelve covered calls positions with February 2010 expirations, with the following results:
- Two positions (Intel and Potash Corp.) closed in-the-money. The calls were exercised and the stock was called away. The annualized percent return-on-investment(ROI) results for these two exercised positions were:

Intel Corporation(INTC): +44.0%
Potash Corp. of Saskatchewan, Inc.(POT): +112.6%

- Ten positions in the CCAP (AMGN, ESV, RSX, MFLX, NOV, NE, PKG, PWR, 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 Mar2010 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 two positions that were assigned (called away) upon Feb2010 expiration are as follows:

1. Intel Corporation(INTC) -- Closed
The transactions history was as follows:
01/27/2010 Bought 300 INTC @ $20.03
01/27/2010 Sold 3 INTC Feb2010 $20.00 Call Options @ $.52
02/03/2010 Ex-Dividend: $47.25 = $.1575*300 shares
02/20/2010 Feb2010 Options Expired
Note: Price of INTC was $20.82 upon Feb2010 expiration.

The overall performance results(including commissions) for the INTC transactions were 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
(c) Capital Appreciation (Stock exercised at $20.00): -$17.95
= ($20.00-$20.03)*300 - $8.95 commissions

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

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

2. Potash Corp. of Saskatchewan, Inc.(POT) -- Closed
The transactions history was as follows:
01/25/2010 Bought 100 POT @ $109.15
01/25/2010 Sold 1 POT Feb2010 $115.00 Call Option @ $3.10
02/20/2010 Feb2010 Options Expired
Note: Price of POT was $115.14 upon Feb2010 expiration.

The overall performance results(including commissions) for the POT transactions were 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 (Stock exercised at $115.00): +$576.05
= ($115.00-$109.15)*100 - $8.95 commissions

Total Net Profit(Stock exercised at $115.00): +$876.35
= (+$300.30 +$0.00 +$576.05)

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

Continuation Transaction -- Hewlett-Packard Company

Today is the options expiration date for Feb2010. The Covered Calls Advisor decided to retain Hewlett-Packard in the Covered Calls Advisor Portfolio(CCAP) so the covered calls position was rolled out from the Feb2010 $50s to the Mar2010 $50s. For a growth company with the quality and excellent management of HPQ, the value proposition remains intact with its current Price/Sales ratio at only 1.0 and a surprisingly low Price/Earnings ratio of 11.5 (based on projected earnings per share this year of around $4.40).

The covered calls roll-out transactions today were as follows:
02/19/2010 Buy-to-Close(BTC) 3 HPQ Feb2010 $50.00s @ $.46
02/19/2010 Sell-to-Open(STO) 3 HPQ Mar2010 $50.00s @ $1.62

The transactions history to date is as follows:
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 when these call options were sold.
02/19/2010 Buy-to-Close(BTC) 3 HPQ Feb2010 $50.00s @ $.46
Note: The price of HPQ was $50.41 when these call options were closed out.
02/19/2010 Sell-to-Open(STO) 3 HPQ Mar2010 $50.00s @ $1.62
Note: The price of HPQ was $50.58 when these call options were sold.
03/15/2010 Ex-Dividend $24.00 = $.08*300 shares
03/20/2010 Mar2010 expiration date

The potential profit for the covered calls positions in HPQ are as follows:
Stock Purchase Cost: $14,921.95
= ($49.71*300+$8.95 commission)

Net Profit:
(a) Options Income: +$800.40
= [300*($1.62-$.46+$1.62) - 3*$11.20 commissions]
(b) Dividend Income: +$24.00 = $.08*300 shares
(c) Capital Appreciation (If stock exercised at $50.00): +$78.05 = ($50.00-$49.71)*300 - $8.95 commissions

Total Net Profit(If stock exercised at $50.00): +$902.45
= (+$800.40 +$24.00 +$78.05)

Absolute Return if Stock Exercised at $50.00: +6.0%
= +$902.45/$14,921.95
Annualized Return If Exercised (ARIE): +38.7%
= (+$902.45/$14,921.95)*(365/57 days)