Establish iShares MSCI Emerging Markets Fund ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI Emerging Markets Fund ETF (EEM) covered calls as follows:

Established iShares MSCI Emerging Markets Fund ETF (EEM) Covered Calls for May2010:
04/30/2010 Bought 400 EEM @ $42.55
04/30/2010 Sold 4 EEM May2010 $43.00 Calls @ $.85

The iShares MSCI Emerging Markets Fund ETF is a diversified Exchange Traded Fund(ETF) with investment exposure in global emerging market(GEM) countries such as Brazil, China, S Korea, Taiwan, and India. So far this year, emerging market stocks have underperformed developed market stocks, but this advisor believes that trend is poised to reverse. In this regard, six factors that favor emerging markets include: cheap exchange rates, cheap labor, improving quality of labor, a clearly superior quantity of labor, lower corporate tax rates, and growing economies of scale.

Two possible overall performance results(including commissions) for the EEM transactions would be as follows:
Stock Purchase Cost: $17,028.95
= ($42.55*400+$8.95 commission)

Net Profit:
(a) Options Income: +$328.05
= (400*$.85 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $42.55):
-$8.95 = ($42.55-$42.55)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $43.00): +$171.05
= ($43.00-$42.55)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $42.55): +$319.10
= (+$328.05 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $43.00): +$499.10
= (+$328.05 +$0.00 +$171.05)

Absolute Return if Unchanged at $42.55: +1.9%
= +$319.10/$17,028.95
Annualized Return If Unchanged (ARIU) +31.1%
= (+$319.10/$17,028.95)*(365/22 days)

Absolute Return if Exercised at $43.00: +2.9%
= +$499.10/$17,028.95
Annualized Return If Exercised (ARIE) +48.6%
= (+$699.10/$17,028.95)*(365/22 days)

Downside Breakeven Price Point: $41.70
Downside Breakeven Protection: 1.9%

Establish Perfect World Co. Ltd. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Perfect World Co. Ltd.(PWRD) as follows:

04/28/2010 Bought 400 PWRD @ $34.75
04/28/2010 Sold 4 PWRD May2010 $35.00 Call Options @ $1.55

Perfect World Co., Ltd. engages in the research, development, operation, and licensing of online games primarily in the People's Republic of China. The company's 3D massively multiplayer online role playing games (MMORPGs) include Perfect World, Legend of Martial Arts, Perfect World II, Zhu Xian, Chi Bi, Hot Dance Party, Pocketpet Journey West, Journey to the West, and Battle of the Immortals. In addition, a major new game, Fantasy Zhu Xian, was released in October 2009 and has been favorably received; and two new games (Forsaken World and Dragon Excalibur) will be released in the second quarter of 2010. These games are important growth drivers and should continue the company's normally impressive successes with their new game releases.

Perfect World is the 4th largest online gaming company based in China. Online gaming represents approximately 50% of total online services revenue in China, and PWRD is very focused since virtually all revenues are generated from their games. Perfect World is known for their highly innovative games. In their relatively short six-year history, they have established a strong sales base (over $300 million in 2009) and a strong customer base -- now exceeding one million average concurrent users(ACU). In addition, they are the leader in exporting Chinese online games worldwide, although exports currently represent only 10% of revenues. They are well-established in the U.S. and are now beginning to expand to Europe.

Perfect World's stock has declined substantially since its 4th quarter earnings release when its profit did not meet expectations. This occurred largely because the profit margin dropped four percentage points as a result of higher marketing expenses (in support of Fantasy Zhu Xian release). Yet PWRD's profitability (as measured via return-on-equity) is expected to continue to exceed 30% this year. This advisor believes the price decline has been excessive and that Perfect World now represents a compelling investment value. Moreover, PWRD covered calls provide an especially attractive investment vehicle now because of the currently available high options volatility that has resulted from this recent stock price decline. This provides a nice options income benefit to us options sellers and thus a very attractive return-on-investment potential for this investment. Perfect World is matching China's total online gaming industry annual growth rate of 30%+, and it is estimated that this trend will continue in 2010 and 2011 for PWRD. But based on its estimated 2010 earnings, PWRD is value-priced with its stock currently trading at a Price/Earnings Ratio of only 9.5 -- well below the P/Es of 14 and above for its major competitors. The potential catalysts for a significant price appreciation in PWRD includes: (1) continually improving gaming quality; (2) strong game development pipeline; (3) continued overseas expansion plans; and (4) compelling financial valuation metrics.

As shown in the "Buy Alerts" spreadsheet below, PWRD has a 'Total Points' rating of 17.24 which substantially exceeds the Covered Calls Advisor's minimum investment threshold of 15.0 points:





















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


Some possible overall performance results(including commissions) for the PWRD transactions would be as follows:
Stock Purchase Cost: $13,908.95
= ($34.75*400+$8.95 commission)

Net Profit:
(a) Options Income: +$608.05
= (400*$1.55 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $34.75):
-$8.95 = ($34.75-$34.75)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $35.00): +$91.05
= ($35.00-$34.75)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $34.75): +$599.10
= (+$608.05 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $35.00): +$699.10
= (+$608.05 +$0.00 +$91.05)

Absolute Return if Unchanged at $34.75: +4.3%
= +$599.10/$13,908.95
Annualized Return If Unchanged (ARIU) +65.5%
= (+$599.10/$13,908.95)*(365/24 days)

Absolute Return if Exercised at $35.00: +5.0%
= +$699.10/$13,908.95
Annualized Return If Exercised (ARIE) +76.4%
= (+$699.10/$13,908.95)*(365/24 days)

Continuation Transaction -- Neutral Tandem Inc. Covered Calls

Last Friday was options expiration for Apr2010. Today it was decided to retain the 200 shares of Neutral Tandem Inc.(TNDM) and to establish a May2010 covered calls position as follows:

04/23/2010 Sell-to-Open (STO) 2 TNDM May2010 $17.50s @ $.55

The transactions history to date for the covered calls position in TNDM is as follows:
02/26/2010 Bought 200 TNDM @ $15.86
02/26/2010 Sold 2 TNDM Apr2010 $17.50 Calls @ $.40
04/17/2010 Apr2010 Options Expired
04/23/2010 Sell-to-Open (STO) 2 TNDM May2010 $17.50s @ $.55
Note: Price of TNDM was $16.95 when the May2010 options were sold.

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: +$169.10
= (200*($.40+$.55) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $16.95):
+$229.05 = ($16.95-$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 $16.95): +$398.15
= (+$169.10 +$0.00 +$229.05)
Total Net Profit(If stock price exercised at $17.50): +$508.15
= (+$169.10 +$0.00 +$339.05)

Absolute Return if Unchanged at $16.95: +12.6%
= +$398.15/$3,160.95
Annualized Return If Unchanged (ARIU): +54.1%
= (+$398.15/$3,160.95)*(365/85 days)

Absolute Return if Exercised at $17.50: +16.1%
= +$508.15/$3,160.95
Annualized Return If Exercised (ARIE): +69.0%
= (+$508.15/$3,160.95)*(365/85 days)

Continuation Transaction -- Sohu.com Covered Calls

Last Friday was options expiration for Apr2010. Today it was decided to retain the 200 shares of Sohu.com Inc.(SOHU) and to establish a May2010 covered calls position as follows:

04/23/2010 Sell-to-Open (STO) 2 SOHU May2010 $55.00s @ $1.45

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.
02/20/2010 Feb2010 Options Expired
03/03/2010 Sell-to-Open (STO) 2 SOHU Apr2010 $55.00s @ $1.05
Note: Price of SOHU was $51.37 when the Apr2010 options were sold.
04/17/2010 Apr2010 Options Expired
04/23/2010 Sell-to-Open (STO) 2 SOHU May2010 $55.00s @ $1.45
Note: Price of SOHU was $52.10 when the May2010 options were sold.

Two 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: +$2,077.30
= (200*($3.50+$.75+$.85+$3.10+$1.05+$1.45) - 6*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $52.10): -$2,398.95
= ($52.10-$64.05)*200 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $55.00): -$1,818.95
= ($55.00-$64.05)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $52.10): -$321.65
= (+$2,077.30 +$0.00 -$2,398.95)
Total Net Profit(If stock exercised at $55.00): +$258.35
= (+$2,077.30 +$0.00 -$1,818.95)

Absolute Return if Stock Price Unchanged at $52.10: -2.5%
= -$321.65/$12,818.95
Annualized Return If Unchanged (ARIU): -4.2%
= (-$321.65/$12,818.95)*(365/218 days)

Absolute Return if Stock Exercised at $55.00: +2.0%
= +$258.35/$12,818.95
Annualized Return If Exercised (ARIE): +3.4%
= (+$258.35/$12,818.95)*(365/218 days)

Continuation Transactions -- ProShares UltraShort 20+ Year Treasury ETF Covered Calls

Last Friday was options expiration for Apr2010. Today it was decided to retain the 300 ProShares UltraShort 20+ Year Treasury ETF(TBT) and to double the existing position by purchasing an additional 300 shares. With these 600 shares, a May2010 covered calls position was established as follows:

04/22/2010 Buy 300 TBT @ $46.63
04/22/2010 Sell-to-Open (STO) 6 TBT May2010 $49.00s @ $.43

The transactions history to date for the covered calls position in ProShares UltraShort 20+ Year Treasury ETF(TBT) is as follows:
03/22/2010 Bought 300 TBT @ $46.81
03/22/2010 Sold 3 TBT Apr2010 $48.00 Calls @ $.45
04/17/2010 3 Apr2010 TBT Options Expired
Note: Price of TBT was $47.70 upon Apr2010 expiration.
04/22/2010 Buy 300 TBT @ $46.63
04/22/2010 Sell-to-Open (STO) 6 TBT May2010 $49.00s @ $.43

Two possible overall performance results (including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $28,049.90
= ($46.81*300+$46.63*300+2*$8.95 commission)

Net Profit:
(a) Options Income: +$368.35
= (300*$.45 + $600*$.43 -$11.20 commissions -$13.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT price unchanged at $46.63):
-$71.90 = ($46.63-$46.81)*300 + ($46.63-$46.63)*300 - 2*$8.95 commissions
(c) Capital Appreciation (If TBT exercised at $49.00): +$1,350.10
= ($49.00-$46.81)*300 + ($49.00-$46.63)*300 - 2*$8.95 commissions

Total Net Profit(If price unchanged at $46.63): +$296.45
= (+$368.35 +$0.00 -$71.90)
Total Net Profit(If TBT exercised at $49.00): +$1,718.45
= (+$368.35 +$0.00 +$1,350.10)

Absolute Return if Unchanged at $46.63: +1.1%
= +$296.45/$28,049.90
Annualized Return If Unchanged (ARIU): +8.4%
= (+$296.45/$28,049.90)*(365/46 days)

Absolute Return if Exercised at $49.00: +6.1%
= +$1,718.45/$28,049.90
Annualized Return If Exercised (ARIE): +48.6%
= (+$1,718.45/$28,049.90)*(365/46 days)

Continuation Transaction -- Quanta Services Inc.

Last Friday was options expiration for Apr2010. Today it was decided to retain the 300 shares of Quanta Services Inc.(PWR) and to establish a May2010 covered calls position as follows:

04/21/2010 Sell-to-Open (STO) 3 PWR May2010 $20.00s @ $.75

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.
03/20/2010 Mar2010 Options Expired
03/22/2010 Sell-to-Open (STO) 3 PWR Apr2010 $20.00s @ $.45
Note: Price of PWR was $19.72 today when the Apr2010 call options were sold.
04/17/2010 Apr2010 Options Expired
04/21/2010 Sell-to-Open (STO) 3 PWR May2010 $20.00s @ $.75
Note: Price of PWR was $20.15 when the May2010 options were sold.

A potential result (including commissions) for this PWR covered calls position would be as follows:
Net Profit:
(a) Options Income: +$570.20
= (300*($.50 +$.35 +$.45+$.75) - 4*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock assigned at $20.00): -$248.95
= ($20.00-$20.80)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $20.00): +$321.25
= (+$570.20 +$0.00 -$248.95)

Absolute Return if Exercised at $20.00: +5.1%
= +$321.25/$6,248.95
Annualized Return If Exercised (ARIE) +12.3%
= (+$321.25/$6,248.95)*(365/152 days)

Continuation Transaction -- Noble Corporation

The Covered Calls Advisor Portfolio(CCAP) positions in Noble Corporation (NE) were out-of-the-money at Apr2010 expiration. Today it was decided to retain the 600 shares of Noble Corp. and to establish a May2010 covered calls position as follows:

04/21/2010 Sell-to-Open (STO) 6 NE May2010 $43.00s @ $1.00

The reader might recall that a second covered calls position was established in Noble Corp. on March 24, 2010 which doubled the holdings in NE from 300 to 600 shares. This transaction is a continuation of the covered calls position for the total of 600 shares of NE that are currently held in the CCAP.

The transactions history to date for the combined covered calls positions in Noble Corporation (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.
02/20/2010 Feb2010 Options Expired
03/01/2010 Sold 3 NE Mar2010 $44.00 Calls @ $.60
Note: The price of NE was $42.84 today when these Mar2010 options were sold.
03/20/2010 Mar2010 Options Expired
03/24/2010 Bought 300 NE @ $40.08
03/24/2010 Sold 3 NE Apr2010 $41.00 Calls @ $.80
03/29/2010 Sell-to-Open (STO) 3 NE Apr2010 $42.00s @ $.45
Note: Price of NE was $40.44 when the Apr2010 options were sold.
04/17/2010 Apr2010 Options Expired
04/21/2010 Sell-to-Open (STO) 6 NE May2010 $43.00s @ $1.00
Note: Price of NE was $42.15 when the May2010 options were sold.


Two possible overall performance results (including commissions) for this NE covered calls position would be as follows:
Stock Purchase Cost: $22,235.90
($33.98*300+$40.08*300+2*$8.95 commission)

Net Profit:
(a) Options Income: +$746.80
= (300*($1.30-$5.22+$3.87-$5.60+$1.75+$1.45+$.90-$.70+$1.30+$.60+$.45+$1.00)+300*($.80+$1.00) - 11*$11.20 commissions)
(b) Dividend Income: +$14.70 ($.049 *300 shares)
(c) Capital Appreciation (If stock price unchanged at $42.15): +$3,054.10
= ($42.15-$33.98)*300+($42.15-$40.08)*300 - 2*$8.95 commissions
(c) Capital Appreciation (If exercised at $43.00): +$3,576.10
= ($43.00-$33.98)*300+($43.00-$40.04)*300 - 2*$8.95 commissions

Total Net Profit(If stock price unchanged at $42.15): +$3,815.60
= (+$746.80 +$14.70 +$3,054.10)
Total Net Profit(If stock price exercised at $43.00): +$4,337.60
= (+$746.80 +$14.70 +$3,576.10)

Absolute Return if Stock Price Unchanged at $42.15: +17.2%
= +$3,815.60/$22,235.90
Annualized Return If Unchanged (ARIU): +38.9%
= (+$3,815.60/$22,235.90)*(365/161 days)

Absolute Return if Exercised at $43.00: +19.5%
= +$4,337.60/$22,235.90
Annualized Return If Exercised (ARIE) +44.2%
= (+$4,337.60/$22,235.90)*(365/161 days)

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 May2010:
04/19/2010 Bought 300 PKG @ $25.06
04/19/2010 Sold 3 PKG May2010 $25.00 Calls @ $1.05

The CCAP Apr2010 covered calls position in PKG was assigned this past weekend. Upon further analysis of Packaging Corp., the Covered Calls Advisor decided to establish a new covered calls position with a May2010 expiration. 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.

Containerboard stocks are well positioned now and enjoy the following potential 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; (2) analysts' current average earnings estimates are low in comparison to likely results for the next several quarters; and (3) a continued rebound in packaging demand.
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.

This covered calls position was established ahead of the earnings release after the market closes today. It was decided to establish this position prior to this earnings release to take advantage of: (1) this advisor's belief that the catalysts described above for PKG will begin to be reflected in today's earnings report; and (2) selling the call options currently somewhat inflated implied volatility (Note: the implied volatility was about 30 when the PKG options were sold today) because of the uncertainty caused by the impending earnings report. The implied volatility is likely to compress significantly beginning tomorrow (after the earnings release), which is a profitable outcome for us options sellers.

As shown in the "Buy Alerts" spreadsheet below, PKG has a 'Total Points' rating of 15.32 which achieves the Covered Calls Advisor's desired minimum threshold of 15.0 points:





















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


Possible overall performance results(including commissions) for the PKG transactions would be as follows:
Stock Purchase Cost: $7,526.95
= ($25.06*300+$8.95 commission)

Net Profit:
(a) Options Income: +$303.80
= (300*$1.05 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock assigned at $25.00): -$26.95
= ($25.00-$25.06)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $25.00): +$276.85
= (+$303.80 +$0.00 -$26.95)

Absolute Return if Assigned at $25.00: +3.7%
= +$276.85/$7,526.95
Annualized Return If Exercised (ARIE) +40.7%
= (+$276.85/$7,526.95)*(365/33 days)

April 2010 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of fifteen covered calls positions with April 2010 expirations. Six positions were adjusted earlier this week (one was closed due to early exercise and five were rolled-up-and-out to May2010 expirations), with the following results:

- The covered calls position in International Paper (IP) was in-the-money and was exercised early on the day prior to Apr2010 expiration. The results from this position were detailed in a prior post this week on this Covered Calls Advisor blog.

- During this past week, in-the-money covered call positions in five equities [Apple Inc.(AAPL), Fluor Corp.(FLR), Gap Inc.(GPS), Interdigital Inc.(IDCC), and iShares MSCI China ETF(FXI)] were rolled-up-and-out to May2010 expirations. These roll-up-and-out transactions were detailed in prior posts this week on this blog.

As described above, of the fifteen covered calls with Apr2010 expirations, six were adjusted prior to expiration and the remaining nine were held until expiration. Of these nine covered calls positions:

- Three positions [(ITT Corporation(ITT), National Oilwell Varco(NOV), and Packaging Corporation of America(PKG)] closed in-the-money. The calls were exercised and the equities were called away. The annualized percent return-on-investment(ROI) results for these three exercised positions were:

ITT Corporation(ITT): +15.2%
National Oilwell Varco(NOV): -6.8%
Packaging Corporation of America(PKG): +37.8%

- Six positions in the CCAP [Neutral Tandem Inc(TNDM), Noble Corportation(NE) with $41.00 strike price, Noble Corportation(NE) with $42.00 strike price, ProShares UltraShort 20-Year Treasury Bonds(TBT), Quanta Services Inc(PWR), and Sohu.com(SOHU)] ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish May2010 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 Apr2010 expiration are as follows:

1. ITT Corporation(ITT) -- Closed
The transactions history was 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
04/17/2010 Apr2010 Options Expired
Note: Price of ITT was $55.87 upon Apr2010 expiration.

The overall performance results(including commissions) for the ITT transactions were 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 (Stock assigned at $55.00): -$92.95
= ($55.00-$55.28)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $55.00): +$1,212.20
= (+$1,166.40 +$138.75 -$92.95)

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

In this example, the price of the ITT stock declined after it was originally purchased. But through continuing to sell monthly call options against the underlying stock, the position was ultimately closed at a reasonably good profit (+15.2% annualized). This overall result benefited substantially from the monthly options income received despite the fact that the stock was sold at a loss (i.e. slightly below the original purchase price).

2. National Oilwell Varco(NOV) -- Closed
The transactions history was as follows:
01/20/2010 Bought 300 NOV @ $45.80
01/20/2010 Sold 3 NOV Feb2010 $46.00 Calls @ $1.75
02/20/2010 Feb2010 Options Expired
03/01/2010 Sold 3 NOV Mar2010 $44.00 Calls @ $.95
Note: The price of NOV was $43.55 today when these Mar2010 options were sold.
03/20/2010 Mar2010 Options Expired
03/29/2010 Sell-to-Open (STO) 3 NOV Apr2010 $42.00s @ $.50
Note: Price of NOV was $40.31 when the Apr2010 options were sold.
04/17/2010 Apr2010 Options Expired
Note: Price of NOV was $42.48 upon Apr2010 expiration.

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

Net Profit:
(a) Options Income: +$926.40
= (300*($1.75+$.95+$.50) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $42.00): -$1,148.95
= ($42.00-$45.80)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $42.00): -$222.55
= (+$926.40 +$0.00 -$1,148.95)

Absolute Return (Stock Assigned at $42.00): -1.6%
= -$222.55/$13,748.95
Annualized Return: -6.8%
= (-$222.55/$13,748.95)*(365/87 days)

3. Packaging Corporation of America(PKG) -- Closed
The transactions history was 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
04/17/2010 Apr2010 Options Expired
Note: Price of PKG was $25.32 upon Apr2010 expiration.

The overall performance results(including commissions) for the PKG transactions were 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 (Stock assigned at $25.00): +$324.05
= ($25.00-$23.89)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $25.00): +$736.65
= (+$367.60 +$45.00 +$324.05)

Absolute Return (Stock Assigned at $25.00): +10.3%
= +$736.65/$7,175.95
Annualized Return: +37.8%
= (+$736.65/$7,175.95)*(365/99 days)

Roll Up and Out -- Apple Inc. and Interdigital Inc.

Today is options expiration Friday for April 2010. The Covered Calls Advisor decided to retain the positions in Apple Inc.(AAPL) and Interdigital Inc(IDCC) so the decision was made to roll-up-and-out to the May2010 expiration. The transactions history as well as some possible results for each position are detailed below:

1. Apple Inc.(AAPL) -- Continuation Transaction
Today, with Apple Inc. stock priced at $248.90 the existing Apr2010 $230.00 covered calls were deep-in-the-money and the time value remaining in the $230.00 covered calls at only $.10 [$19.00-($248.90-$230.00)], a roll-out debit spread transaction was executed as follows:
04/16/2010 Buy-to-Close (BTC) 1 AAPL Apr2010 $230.00 @ $19.00
04/16/2010 Sell-to-Open (STO) 1 AAPL May2010 $250.00 @ $9.40
Note: Net Debit Spread upon Roll-Up-and-Out was $9.60 ($19.00 - $9.40)

The transactions history to date for Apple Inc.(AAPL) is as follows:
02/24/2010 Bought 100 AAPL @ $198.677
02/24/2010 Sold 1 AAPL Mar2010 $210.00 Call @ $1.57
Roll-Up-and-Out Transaction:
03/19/2010 Buy-to-Close (BTC) 1 AAPL Mar2010 $210.00 @ $12.20
03/19/2010 Sell-to-Open (STO) 1 AAPL Apr2010 $230.00s @ $3.40
Note: The price of AAPL was $222.18 today when this debit-spread was transacted.
04/16/2010 Buy-to-Close (BTC) 1 AAPL Apr2010 $230.00 @ $19.00
04/16/2010 Sell-to-Open (STO) 1 AAPL May2010 $250.00 @ $9.40
Note: The price of AAPL was $248.90 today when this debit-spread was transacted.

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

Net Profit:
(a) Options Income: -$1,712.10
= (100*($1.57-$12.20+$3.40-$19.00+$9.40) - 3*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $248.90):
+$5,013.35 = ($248.90-$198.677)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $250.00): +$5,123.35
= ($250.00-$198.677)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $248.90): +$3,301.25
= (-$1,712.10 +$0.00 +$5,013.35)
Total Net Profit(If stock price exercised at $250.00): +$3,411.25
= (-$1,712.10 +$0.00 +$5,123.35)

Absolute Return if Unchanged at $248.90: +16.6%
= +$3,301.25/$19,876.65
Annualized Return If Unchanged (ARIU) +69.7%
= (+$3,301.25/$19,876.65)*(365/87 days)

Absolute Return if Exercised at $250.00: +17.2%
= +$3,411.25/$19,876.65
Annualized Return If Exercised (ARIE) +72.0%
= (+$3,411.25/$19,876.65)*(365/87 days)


2. Interdigital Inc.(IDCC) -- Continuation Transaction
With the time value remaining in the IDCC options at only $.06 [$.50-($29.44-$29.00)], a roll-up-and-out credit spread transaction was executed today as follows:
04/16/2010 Buy-to-Close (BTC) 2 IDCC Apr2010 $29.00s @ $.50
04/16/2010 Sell-to-Open (STO) 2 IDCC May2010 $31.00s @ $.65
Note: Net Credit-Spread upon Roll-Up-and-Out was $.15 ($.65 - $.50)

The transactions history to date for Interdigital Inc.(IDCC) is as follows:
03/25/2010 Bought 200 IDCC @ $28.03
03/25/2010 Sold 2 IDCC Apr2010 $29.00 Calls @ $.50
04/16/2010 Buy-to-Close (BTC) 2 IDCC Apr2010 $29.00s @ $.50
04/16/2010 Sell-to-Open (STO) 2 IDCC May2010 $31.00s @ $.65
Note: The price of IDCC was $29.44 today when this credit-spread was transacted.

Some possible overall performance results(including commissions) for the IDCC transactions would be as follows:
Stock Purchase Cost: $5,614.95
= ($28.03*200+$8.95 commission)

Net Profit:
(a) Options Income: +$109.10
= (200*($.50-$.50+$.65 - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.44):
+273.05 = ($29.44-$28.03)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $31.00): +$585.05
= ($31.00-$28.03)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.44): +$382.15
= (+$109.10 +$0.00 +$273.05)
Total Net Profit(If stock price exercised at $31.00): +$694.15
= (+$109.10 +$0.00 +$585.05)

Absolute Return if Unchanged at $29.44: +6.8%
= +$382.15/$5,614.95
Annualized Return If Unchanged (ARIU) +42.8%
= (+$80.60/$5,614.95)*(365/58 days)

Absolute Return if Exercised at $29.00: +12.4%
= +$694.15/$5,614.95
Annualized Return If Exercised (ARIE) +77.8%
= (+$694.15/$5,614.95)*(365/58 days)

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:

04/16/2010 Bought 100 POT @ $109.86
04/16/2010 Sold 1 POT May2010 $115.00 Call Option @ $3.03

This is a return to a successful covered calls position taken in POT for Feb2010 expiration. 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, demand for potash fertilizer for corn, soybeans, and wheat should sustain continued growth, and POT is well positioned for a likely price rebound from its recent price pullback. 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: $10,977.05
= ($109.86*100+$8.95 commission)

Net Profit:
(a) Options Income: +$293.30
= (100*$3.03 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $109.86):
-$8.95 = ($109.86-$109.86)*100 - $8.95 commissions
(c) Capital Appreciation (If exercised at $115.00): +$505.05
= ($115.00-$109.86)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $109.86): +$284.35
= (+$293.30 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $115.00): +$798.35
= (+$293.30 +$0.00 +$505.05)

Absolute Return if Unchanged at $109.86: +2.6%
= +$284.35/$10,977.05
Annualized Return If Unchanged (ARIU) +26.3%
= (+$284.35/$10,977.05)*(365/36 days)

Absolute Return if Exercised at $115.00: +7.3%
= +$798.35/$10,977.05
Annualized Return If Exercised (ARIE) +73.7%
= (+$798.35/$10,977.05)*(365/36 days)

Early Exercise -- International Paper Co.

The Covered Calls Advisor received an email notification overnight that the two call options in International Paper Co.(IP) were exercised yesterday -- hence, the 200 shares owned in IP were called away (sold) at the $26.00 strike price. This early exercise is a desirable outcome since: (1) the max potential profit was realized on this covered calls position and it was achieved one day earlier than would have otherwise occurred; (2) this early exercise frees up cash in the Covered Calls Advisor Portfolio which opens the possibility of establishing a new covered calls position for May2010 today (Friday) and not needing to wait until next Monday (i.e. after assignment that would likely occur this weekend as a result of Apr2010 expiration today); and (3) it was the Covered Calls Advisor's intention to allow the shares in IP to be called away today anyway (upon Apr2010 expiration), so the early exercise is a welcomed event.

The performance results (including commissions) for the covered calls position in International Paper Co.(IP) were as follows:
Stock Purchase Cost: $7,529.95
= ($25.07*300+$8.95 commission)

Net Profit:
(a) Options Income: +$126.05
= (300*$.45 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock Assigned at $26.00): +$270.05
= ($26.00-$25.07)*300 - $8.95 commissions

Total Net Profit(Stock Assigned at $26.00): +$396.10
= (+$126.05 +$0.00 +$270.05)

Absolute Return (Stock Assigned at $26.00): +5.3%
= +$396.10/$7,529.95
Annualized Return: +91.4%
= (+$396.10/$7,529.95)*(365/21 days)

Roll Up and Out -- Fluor Corp., Gap Inc., and iShares MSCI China ETF

Today is the day prior to options expiration Friday for April 2010. The Covered Calls Advisor remains bullish on the prospects for Fluor Corp.(FLR), Gap Inc.(GPS), and iShares MSCI China ETF(FXI); so a decision was made to retain them in the Covered Calls Advisor Portfolio (CCAP) and to roll-up-and-out to the May2010 expiration. The detailed transactions history as well as some possible results for each position are presented below:

1. Fluor Corp.(FLR) -- Continuation Transaction
Today, with the existing Fluor covered calls being deep-in-the-money and the time value remaining in the Apr2010 $45.00 covered calls at only $.01 [$6.40-($51.39-$45.00)], a roll-out credit spread transaction was executed as follows:
04/15/2010 Buy-to-Close (BTC) 3 FLR Apr2010 $45.00s @ $6.40
04/15/2010 Sell-to-Open (STO) 3 FLR May2010 $50.00s @ $2.85
Note: Net Debit Spread upon Roll-Up-and-Out was $3.55 ($6.40 - $2.85)

The transactions history to date for Fluor Corp. (FLR) is as follows:
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)
11/21/09 Nov09 Options Expired
The closing price of FLR was $44.19 on expiration Friday.
12/02/2009 Ex-Dividend $37.50 (.125*300 shares)
12/15/09 Sell-to-Open (STO) 3 FLR Jan2010 $45.00s @ $1.10
Note: The price of FLR was $43.10 today when this transaction was made.
01/16/2010 Jan2010 Options Expired
03/03/2010 Ex-Dividend $37.50 (.125*300 shares)
03/03/2010 Sell-to-Open (STO) 3 FLR Mar2010 $45.00s @ $.35
Note: Price of FLR was $43.26 when the Mar2010 options were sold.
03/17/2010 Buy-to-Close (BTC) 3 FLR Mar2010 $45.00s @ $1.35
03/17/2010 Sell-to-Open (STO) 3 FLR Apr2010 $45.00s @ $2.15
Note: Price of FLR was $46.26 when the Apr2010 credit-spread transaction occurred.
04/15/2010 Buy-to-Close (BTC) 3 FLR Apr2010 $45.00s @ $6.40
04/15/2010 Sell-to-Open (STO) 3 FLR May2010 $50.00s @ $2.85
Note: Price of FLR was $51.39 when the debit-spread transaction occurred.

A possible overall performance result(including commissions) for the FLR transactions would be as follows:
Stock Purchase Cost: $16,487.95
= ($54.93*300+$8.95 commission)

Net Profit:
(a) Options Income: +$731.60
= (300*($1.95+$.95-$.05+$1.15+$1.10+$.35-$1.35+$2.15-$6.40+$2.85) - 7*$11.20 commissions)
(b) Dividend Income: +$75.00 =($.125*2)*300 shares
(c) Capital Appreciation (If exercised at $50.00): -$1,487.95
= ($50.00-$54.93)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $50.00): -$298.55
= (+$731.60 +$75.00 -$1,105.15)

Absolute Return if Exercised at $50.00: -1.8%
= -$298.55/$16,487.95
Annualized Return If Exercised (ARIE) -2.7%
= (-$1,105.15/$16,487.95)*(365/242 days)

2. Gap Inc.(GPS) -- Continuation Transaction
With the time value remaining in the GPS options at only $.04 [$2.30-($25.26-$23.00)], a roll-up-and-out debit spread transaction was executed today as follows:
04/15/2010 Buy-to-Close (BTC) 3 GPS Apr2010 $23.00s @ $2.30
04/15/2010 Sell-to-Open (STO) 3 GPS May2010 $25.00s @ $1.00
Note: Net Debit-Spread upon Roll-Up-and-Out was $1.30 ($2.30 - $1.00)

The transactions history to date for Gap Inc. (GPS) is as follows:
02/22/2010 Bought 300 GPS @ $19.76
02/22/2010 Sold 3 GPS Mar2010 $20.00 Calls @ $.60
Roll-Up-and-Out Transaction:
03/12/2010 Buy-to-Close (BTC) 3 GPS Mar2010 $20.00s @ $2.80
03/12/2010 Sell-to-Open (STO) 3 GPS Apr2010 $23.00s @ $.55
Note: The price of GPS was $22.76 today when this debit-spread was transacted and the remaining time value in the Mar2010 options was only $.04 [$2.80-($22.76-$20.00)].
04/05/2010 Ex-Dividend = $30.00 (300 shares*$.10)
04/15/2010 Buy-to-Close (BTC) 3 GPS Apr2010 $23.00s @ $2.30
04/15/2010 Sell-to-Open (STO) 3 GPS May2010 $25.00s @ $1.00
Note: Price of GPS was $25.26 when the debit-spread transaction occurred.

A possible overall performance result(including commissions) for the Gap Inc. (GPS) transactions would be as follows:
Stock Purchase Cost: $5,936.95
= ($19.76*300+$8.95 commission)

Net Profit:
(a) Options Income: -$918.60
= (300*($.60-$2.80+$.55-$2.30+$1.00) - 3*$11.20 commissions)
(b) Dividend Income: +$30.00 =(300 shares*$.10)
(c) Capital Appreciation (If exercised at $25.00): +$1,563.05
= ($25.00-$19.76)*300 - $8.95 commissions

Total Net Profit(If stock price exercised at $25.00): +$674.45
= (-$918.60 +$30.00 +$1,563.05)

Absolute Return if Exercised at $25.00: +11.4%
= +$674.45/$5,936.95
Annualized Return If Exercised (ARIE) +46.6%
= (+$674.45/$5,936.95)*(365/89 days)

3. iShares MSCI China ETF (FXI) -- Continuation
Today, with the time value remaining in the FXI options at only $.05 [$.97-($43.92-$43.00)], a roll-up-and-out credit spread transaction was executed today as follows:
04/15/2010 Buy-to-Close (BTC) 10 FXI Apr2010 $43.00s @ $.97
04/15/2010 Sell-to-Open (STO) 10 FXI May2010 $45.00s @ $.99
Note: Net Credit-Spread upon Roll-Up-and-Out was $.02 ($.99 - $.97)

The transactions history to date for iShares MSCI China ETF (FXI) is as follows:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44
11/27/09 Bought 400 FXI @ $42.54
11/27/09 Sold 4 FXI Dec09 $44.00 Calls @ $1.13
12/19/09 Dec09 Options Expired
12/24/09 Sell-to-Open (STO) 10 FXI Jan2010 $43.00s @ $.63
Note: Price of FXI was $42.22 when the Jan2010 options were sold.
03/01/2010 Sell-to-Open (STO) 10 FXI Mar2010 $42.00s @.46
Note: Price of FXI was $40.54 when the Mar2010 options were sold.
03/20/2010 Mar2010 Options Expired
03/29/2010 Sell-to-Open (STO) 10 FXI Apr2010 $43.00s @ $.33
Note: Price of FXI was $41.49 when the Apr2010 options were sold.
04/15/2010 Buy-to-Close (BTC) 10 FXI Apr2010 $43.00s @ $.97
04/15/2010 Sell-to-Open (STO) 10 FXI May2010 $45.00s @ $.99
Note: Price of FXI was $43.92 when the May2010 options were sold.

Two possible performance results (including commissions) for the FXI transactions would be as follows:
Stock Purchase Cost: $44,357.90
= ($45.54*600+$42.54*400+2*$8.95 commission)

Net Profit:
(a) Options Income: +$2,693.30
= (600*($1.44+$.63+$.46+$.33-$.97+$.99)+400*($1.13+$.63+$.46+$.33-$.97+$.99) - 6*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $43.92):
-$428.95 = [($43.92-$45.54)*600-($43.92-$42.54)*400] - $8.95 commissions
(c) Capital Appreciation (If exercised at $45.00): +$651.05
= [($45.00-$45.54)*600-($45.00-$42.54)*400] - $8.95 commissions

Total Net Profit(If stock price unchanged at $43.92): +$2,264.35
= (+$2,693.30 +$0.00 -$428.95)
Total Net Profit(If stock exercised at $45.00): +$3,344.35
= (+$2,693.30 +$0.00 +$651.05)

Absolute Return if Stock Price Unchanged at $43.92: +5.1%
= +$2,264.35/$44,357.90
Annualized Return If Unchanged (ARIU): +10.1%
= (+$2,264.35/$44,357.90)*(365/185 days)

Absolute Return if Stock Exercised at $45.00: +7.5%
= +$3,344.35/$44,357.90
Annualized Return If Exercised (ARIE): +14.9%
= (+$3,344.35/$44,357.90)*(365/185 days)