Returns -- Through July 2010

1. July2010 Year-to-Date Results:

As shown in the table below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the Russell 3000 benchmark by 5.60 percentage points [-6.12%-(-0.52%)] so far in 2010:













CCAP Absolute Return (Jan 1st through July 31st, 2010) = -6.12%
($258,632.18-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through July 31st, 2010) = -0.52%
($64.94-$65.28)/$65.28


2. Prior Years Results:
The Covered Calls Advisor Portfolio (CCAP) began 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 Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all positions in the CCAP are also held in the personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

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. Here's an example to aid understanding of how the overall portfolio performance is determined:
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.

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.

Regards and Godspeed,
Jeff

Establish Microsoft Corp. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Microsoft Corp.(MSFT) covered calls as follows:

Established Microsoft Corp.(MSFT) Covered Calls for Aug2010:
07/23/2010 Bought 500 MSFT @ $25.47
07/23/2010 Sold 5 MSFT Aug2010 $26.00 Calls @ $.44
These transactions now complete the Covered Calls Advisor Portfolio for Aug2010 positions since the portfolio is now 96 percent invested in covered calls and 4% in cash.

Microsoft is the world's largest software maker, primarily as a result of its near monopoly position in desktop operating systems and its Office productivity suite. The combination of these two strongholds poses a formidable barrier to entry for competitors. The new product-cycle offerings in these two areas (Windows 7 and Office/Outlook 2010) are being well received and will provide nice growth catalysts for at least the next two years. Moreover, Microsoft has used its strong cash flows from these businesses to fund research and development in other markets, including home entertainment consoles and internet online advertising.

The company has five operating business divisions: Windows and Windows Live, Server and Tools, Online Services Business, Microsoft Business, and Entertainment and Devices. The Windows division includes the Windows operating system cluster of products, the Server and Tools division includes the Windows Server operating system and enterprise oriented products, the Online Services Business includes web-based advertising, MSN and the Bing search engine, the Microsoft Business Division includes the MS Office suite of products, and, finally, the Entertainment and Devices division features the Xbox 360 game console, video games such as 'Halo 3,' and software for mobile and embedded devices.
Microsoft has about 93,000 employees worldwide and is based in Redmond, Washington.

After the market closed yesterday, Microsoft issued an excellent June quarter earnings report that surpassed analysts' revenue and profit estimates. Each of their five divisions showed double-digit revenue growth while also keeping operating costs below expectations. Based on these results, this advisor believes that Microsoft continues to successfully streamline its cost structure, which will allow the company to show significant operating margin and earnings per share leverage.

Looking to the near-term future, the company should continue to benefit from the robust consumer demand for PCs, and improved business demand for PCs and servers. The company is poised to benefit substantially from the overlapping Windows 7, Windows Server, Xbox Kinect (Their new hands-free interface for the Xbox 360 game console that will be available before Christmas this year), Azure (Cloud Computing), Bing (Search), SharePoint (Web development for businesses), and Microsoft Office/Outlook 2010 new-product cycles during the second half of calendar year 2010 and into 2011. It appears to this advisor that Microsoft's impressive offerings in this product cycle are under-appreciated by both analysts and investors.

Analysts' current earnings estimates of $2.38 per share for FY 2011 (Note: Microsoft's FY 2011 ends on June 30, 2011) seem to understate Microsoft's earnings potential, which this advisor estimates will exceed $2.50. So a stock price catalyst in the form of several upcoming beat-and-raise quarterly reports is likely. Placing a historically conservative P/E of 12 on $2.50 earnings plus over $4.00 per share of net cash results in a $34 target price (a 33% increase above its current price). In short, given Microsoft's improving outlook, the stock is now cheap since it is trading near the bottom of its ten-year historical range on both a price-to-earnings (P/E) and an enterprise value-to-sales (EV/Sales) basis, thus providing room for some expansion in these multiples in the coming months. Finally, in addition to its attractive financial valuation, Microsoft is also an attractive investment because of its shareholder-friendly capital allocation policies (buybacks & dividends).

Soon after today's market open, MSFT was trading more than 1.0% below yesterday's close, and the Covered Calls Advisor took that opportunity to establish a covered calls position. Most importantly for this advisor, the Buy Alerts spreadsheet below (includes financials through the 4th quarter) shows that MSFT is a very attractive at this time since the total points rating of 17.86 is well above the Covered Calls Advisor's desired "Buy" threshold of 15.0.





















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

Some possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $12,743.95
= ($25.47*500+$8.95 commission)

Net Profit:
(a) Options Income: +$207.30
= (500*$.44 - $12.70 commissions)
(b) Dividend Income: +$65.00 =($.13 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $25.47):
-$8.95 = ($25.47-$25.47)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $26.00): +$256.05
= ($26.00-$25.47)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.47): +$263.35
= (+$207.30 +$65.00 -$8.95)
Total Net Profit(If stock price exercised at $26.00): +$528.35
= (+$207.30 +$65.00 +$256.05)

Absolute Return if Unchanged at $25.47: +2.1%
= +$263.35/$12,743.95
Annualized Return If Unchanged (ARIU) +26.0%
= (+$263.35/$12,743.95)*(365/29 days)

Absolute Return if Exercised at $26.00: +4.1%
= +$528.35/$12,743.95
Annualized Return If Exercised (ARIE) +52.2%
= (+$528.35/$12,743.95)*(365/29 days)

Continuation Transactions to Establish August 2010 Covered Calls Positions

Last Friday was options expiration for Jul2010 and all twelve of the Jul2010 covered calls positions in the Covered Calls Advisor Portfolio were out-of-the-money. Today it was decided to sell out of the position in Gap Inc (see prior post on this blog) and to retain the existing shares in the remaining eleven positions and to establish Aug2010 covered calls positions in them. The transactions history as well as some possible results for each position are detailed below:


1. Apple Inc.(AAPL) -- Continuation Transaction

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.
5/22/2010 May2010 Options Expired
Note: The closing price of AAPL was $242.32 on expiration Friday
6/01/2010 Sold 1 AAPL Jun2010 $260.00 @ $9.50
Note: The price of AAPL was approximately $261.35 when this option was sold.
6/18/2010 Buy-to-Close (BTC) 1 AAPL Jun2010 $260.00 @ $13.90
6/18/2010 Sell-to-Open (STO) 1 AAPL Jul2010 $280.00 @ $7.50
Note: The price of AAPL was $273.88 today when this debit-spread was transacted.
07/17/2010 Jul2010 Options Expired
Note: The closing price of AAPL was $249.90 on expiration Friday.
07/22/2010 Sold 1 AAPL Aug2010 $270.00 Call @ $4.35
Note: The price of AAPL was $258.02 today when this option was sold.

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: -$996.20
= (100*($1.57-$12.20+$3.40-$19.00+$9.40+$9.50-$13.90+$7.50+$4.35) - 6*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $258.02): +$5,925.35
= ($258.02-$198.677)*100 - $8.95 commissions
(c) Capital Appreciation (If stock called away at $270.00): +$7,123.35
= ($270.00-$198.677)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $258.02): +$4,929.15
= (-$996.20 +$0.00 +$5,925.35)
Total Net Profit(If stock price exercised at $270.00): +$6,127.15
= (-$996.20 +$0.00 +$7,123.35)

Absolute Return (If Stock unchanged at $258.02): +24.8%
= +$4,929.15/$19,876.65
Annualized Return If Exercised (ARIE) +50.9%
= (+$4,929.15/$19,876.65)*(365/178 days)

Absolute Return (If Stock exercised at $270.00): +30.8%
= +$6,127.15/$19,876.65
Annualized Return If Exercised (ARIE) +63.2%
= (+$6,127.15/$19,876.65)*(365/178 days)

2. Bank of America Corp.(BAC) -- Continuation Transaction

The transactions history to date for Bank of America Corp.(BAC) is as follows:
06/21/2010 Bought 400 BAC @ $16.04
06/21/2010 Sold 4 BAC Jul2010 $16.00 Calls @ $.58
07/17/2010 Jul2010 Options Expired
Note: The closing price of BAC was $13.98 on expiration Friday.
07/22/2010 Sold 4 BAC Aug2010 $14.00 Calls @ $.50
Note: The price of BAC was $13.87 today when this option was sold.

Two possible overall performance results(including commissions) for the Bank of America Corp.(BAC) transactions would be as follows:
Stock Purchase Cost: $6,424.95
= ($16.04*400+$8.95 commission)

Net Profit:
(a) Options Income: +$408.10
= (400*($.58+$.50) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $13.87): -$876.95
= ($16.04-$13.87)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $14.00): -$824.95
= ($14.00-$16.04)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $13.87): -$468.85
= (+$408.10 +$0.00 -$876.95)
Total Net Profit(If stock assigned at $14.00): -$416.85
= (+$408.10 +$0.00 -$824.95)

Absolute Return (If Stock unchanged at $13.87): -2.4%
= -$468.85/$19,876.65
Annualized Return If Unchanged (ARIU) -14.1%
= (-$468.85/$19,876.65)*(365/61 days)

Absolute Return if Assigned at $14.00: -2.1%
= -$416.85/$19,876.65
Annualized Return If Exercised (ARIE) -12.5%
= (-$416.85/$19,876.65)*(365/61 days)

3. Best Buy Co Inc.(BBY) -- Continuation Transaction

The transactions history to date for Best Buy Co Inc.(BBY) is as follows:
06/23/2010 Bought 400 BBY @ $36.08
06/23/2010 Sold 4 BBY Jul2010 $37.00 Calls @ $.82
07/17/2010 Jul2010 Options Expired
Note: The closing price of BBY was $34.33 on expiration Friday.
07/22/2010 Sold 4 BBY Aug2010 $35.00 Calls @ $1.06
Note: The price of BBY was $34.68 today when this option was sold.

Two possible overall performance results(including commissions) for Best Buy Co Inc.(BBY) transactions would be as follows:
Stock Purchase Cost: $14,440.95
= ($36.08*400+$8.95 commission)

Net Profit:
(a) Options Income: +$728.10
= 400*($.82+$1.06) - 2*$11.95
(c) Capital Appreciation (If BBY unchanged at $34.68): -$568.95
= ($34.68-$36.08)*400 - $8.95 commissions
(c) Capital Appreciation (If BBY assigned at $35.00): -$440.95
= ($35.00-$36.08)*400 - $8.95 commissions

Total Net Profit(If BBY price unchanged at $34.68): +$159.15
= (+$728.10 +$0.00 -$568.95)
Total Net Profit(If BBY assigned at $35.00): +$287.15
= (+$728.10 +$0.00 -$440.95)

Absolute Return (If BBY unchanged at $34.68): +1.1%
= +$159.15/$14,440.95
Annualized Return If Unchanged (ARIU): +6.8%
= (+$159.15/$14,440.95)*(365/59 days)

Absolute Return if Exercised at $35.00: +2.0%
= +$287.15/$14,440.95
Annualized Return If Exercised (ARIE): +12.3%
= (+$287.15/$14,440.95)*(365/59 days)

4. Cubist Pharmaceuticals(CBST) -- Continuation Transaction

The transactions history to date for Cubist Pharmaceuticals(CBST) is as follows:
06/25/2010 Bought 300 CBST @ $21.31
06/25/2010 Sold 3 CBST Jul2010 $22.50 Calls @ $.50
07/17/2010 Jul2010 Options Expired
Note: The closing price of CBST was $21.37 on expiration Friday.
07/22/2010 Sold 3 CBST Aug2010 $22.50 Calls @ $.60
Note: The price of CBST was $21.24 today when this option was sold.

Two possible overall performance results(including commissions) for the Cubist Pharmaceuticals(CBST) transactions would be as follows:
Stock Purchase Cost: $6,401.95
= ($21.31*300+$8.95 commission)

Net Profit:
(a) Options Income: +$307.60
= (300*($.50+$.60) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.24):
-$29.95 = ($21.24-$21.31)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $22.50): +$348.05
= ($22.50-$21.31)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $21.24): +$277.65
= (+$307.60 +$0.00 -$29.95)
Total Net Profit(If stock price exercised at $22.50): +$655.65
= (+$307.60 +$0.00 +$348.05)

Absolute Return if Unchanged at $21.24: +4.3%
= +$277.65/$6,401.95
Annualized Return If Unchanged (ARIU) +27.8%
= (+$277.65/$6,401.95)*(365/57 days)

Absolute Return if Exercised at $22.50: +5.6%
= +$655.65/$6,401.95
Annualized Return If Exercised (ARIE) +35.6%
= (+$655.65/$6,401.95)*(365/57 days)

5. Domtar Corp.(UFS) -- Continuation Transaction

The transactions history to date for Domtar Corp.(UFS) is as follows:
06/23/2010 Bought 400 UFS @ $55.10
06/23/2010 Sold 4 UFS Jul2010 $60.00 Calls @ $1.10
07/17/2010 Jul2010 Options Expired
Note: The closing price of UFS was $47.77 on expiration Friday.
07/22/2010 Sold 4 UFS Aug2010 $55.00 Calls @ $1.20
Note: The price of UFS was $50.80 today when these options were sold.

Two possible overall performance results(including commissions) for Domtar Corp.(UFS) transactions would be as follows:
Stock Purchase Cost: $22,048.95
= ($55.10*400+$8.95 commission)

Net Profit:
(a) Options Income: +$896.10
= (400*($1.10+$1.20) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UFS unchanged at $50.80): -$1,728.95
= ($50.80-$55.10)*400 - $8.95 commissions
(c) Capital Appreciation (If UFS assigned at $55.00): -$48.95
= ($55.00-$55.10)*400 - $8.95 commissions

Total Net Profit(If UFS price unchanged at $50.80): -$832.85
= ($896.10 +$0.00 -$1,728.95)
Total Net Profit(If UFS assigned at $55.00): +$847.15
= (+$896.10 +$0.00 -$48.95)

Absolute Return (If UFS unchanged at $50.80): -3.8%
= -$832.85/$22,048.95
Annualized Return If Unchanged (ARIU): -23.4%
= (-$832.85/$22,048.95)*(365/59 days)

Absolute Return if Exercised at $55.00: +3.8%
= +$847.15/$22,048.95
Annualized Return If Exercised (ARIE): +23.8%
= (+$847.15/$22,048.95)*(365/59 days)

6. DSW Inc.(DSW) -- Continuation Transaction

The transactions history to date for DSW Inc.(DSW) is as follows:
06/22/2010 Bought 300 DSW @ $24.75
06/22/2010 Sold 3 DSW Jul2010 $25.00 Calls @ $1.100
7/17/2010 Jul2010 Options Expired
Note: The closing price of DSW was $23.21 on expiration Friday.
07/22/2010 Sold 3 DSW Aug2010 $25.00 Calls @ $1.05
Note: The price of DSW was $24.86 today when these options were sold.

Two possible overall performance results(including commissions) for the DSW Inc.(DSW) transactions would be as follows:
Stock Purchase Cost: $7,433.95
= ($24.75*300+$8.95 commission)

Net Profit:
(a) Options Income: +$622.60
= (300*($1.10+$1.05) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $24.86):
-$24.05 = ($24.86-$24.75)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $25.00): +$66.05
= ($25.00-$24.75)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.86): +$598.55
= (+622.60 +$0.00 -$24.05)
Total Net Profit(If stock price exercised at $25.00): +$688.65
= (+$622.60 +$0.00 +$66.05)

Absolute Return if Unchanged at $24.86: +8.1%
= +$598.55/$7,433.95
Annualized Return If Unchanged (ARIU) +49.0%
= (+$598.55/$7,433.95)*(365/60 days)

Absolute Return if Exercised at $25.00: +9.3%
= +$688.65/$7,433.95
Annualized Return If Exercised (ARIE) +56.4%
= (+$688.65/$7,433.95)*(365/60 days)

7. Intel Corporation (INTC) -- Continuation Transaction

The transactions history to date for Intel Corp(INTC) is as follows:
05/21/2010 Bought 300 INTC @ $20.30
05/21/2010 Sold 3 INTC Jun2010 $22.00 Call Options @ $.52
06/21/2010 Sold 3 INTC Jul2010 $22.00 Call Options @$.46
Note: The price of INTC was $21.60 when these options were sold.
7/17/2010 Jul2010 Options Expired
Note: The closing price of INTC was $21.02 on expiration Friday.
07/22/2010 Sold 3 INTC Aug2010 $22.00 Calls @ $.42
Note: The price of INTC was $21.70 today when these options were sold.


Two possible overall performance results(including commissions) for the Intel Corp(INTC) transactions would be as follows:
Stock Purchase Cost: $6,098.95
= ($20.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$386.40
= 300*($.52+$.46+$.42) - 3*$11.20 commissions
(b) Dividend Income: +$47.25 ($.1575 * 300 shares)
(c) Capital Appreciation (If stock price unchanged at $21.70):
+$411.05 = ($21.70-$20.30)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $22.00): +$501.05
= ($22.00-$20.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $21.70): +$844.70
= (+$386.40 +$47.25 +$411.05)
Total Net Profit(If stock price exercised at $22.00): +$934.70
= (+$386.40 +$47.25 +$501.05)

Absolute Return (If Stock Unchanged at $21.70): +13.8%
= +$844.70/$6,098.95
Annualized Return If Unchanged (ARIU): +54.9%
= (+$844.70/$6,098.95)*(365/92 days)

Absolute Return if Exercised at $22.00: +15.3%
= +$934.70/$6,098.95
Annualized Return If Exercised (ARIE): +60.8%
= (+$934.70/$6,098.95)*(365/92 days)

8. iShares MSCI China ETF (FXI) -- Continuation Transaction

The transactions history to date for iShares MSCI China ETF (FXI) is as follows:
06/21/2010 Bought 1,100 FXI @ $41.85
06/21/2010 Sold 11 FXI Jul2010 $43.00 Calls @ $.71
7/17/2010 Jul2010 Options Expired
Note: The closing price of FXI was $38.74 on expiration Friday.
07/22/2010 Sold 7 FXI Aug2010 $42.00 Calls @ $.73
07/22/2010 Sold 4 FXI Aug2010 $43.00 Calls @ $.42
Note: The price of FXI was $41.02 today when these options were sold.

Some possible overall performance results(including commissions) for the iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $46,043.95
= ($41.85*1,100+$8.95 commission)

Net Profit:
(a) Options Income: +$763.80
= (1,100*$.71 + 700*$.73 + 4008$.40 - ($17.20+$14.20+$11.95) commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI unchanged at $41.02): $-921.95
= ($41.02-$41.85)*1,100 - $8.95 commissions
(c) Capital Appreciation (If FXI closes at $42.50): +$706.05
= ($42.50-$41.85)*1,100 - $8.95 commissions
(c) Capital Appreciation (If all FXI shares are assigned with price above $43.00): +$1,256.05 = ($43.00-$41.85)*1,100 - $8.95 commissions

Total Net Profit(If FXI price unchanged at $41.02): -$158.15
= (+$763.80 +$0.00 -$921.95)
Total Net Profit(If FXI closes at $42.50): +$1,469.85
= (+$763.80 +$0.00 +$706.05)
Total Net Profit(If FXI assigned at $43.00): +$2,019.85
= (+$763.80 +$0.00 +$1,256.05)

Absolute Return (If FXI unchanged at $41.02): -0.3%
= -$158.15/$46,043.95
Annualized Return If Unchanged (ARIU): -2.1%
= (-$158.15/$46,043.95)*(365/61 days)

Absolute Return if FXI closes at $42.50: +3.2%
= +$1,469.85/$46,043.95
Annualized Return If Exercised (ARIE): +19.1%
= (+$1,469.85/$46,043.95)*(365/61 days)

Absolute Return if Exercised at $43.00: +4.4%
= +$2,019.85/$46,043.95
Annualized Return If Exercised (ARIE): +26.2%
= (+$2,019.85/$46,043.95)*(365/61 days)

9. iShares MSCI South Korea ETF (EWY) -- Continuation Transaction

The transactions history to date for iShares MSCI South Korea ETF (EWY) is as follows:
06/21/2010 Bought 400 EWY @ $49.33
06/21/2010 Sold 4 EWY Jul2010 $50.00 Calls @ $.85
7/17/2010 Jul2010 Options Expired
Note: The closing price of EWY was $46.37 on expiration Friday.
07/22/2010 Sold 4 EWY Aug2010 $49.00 Calls @ $1.05
Note: The price of EWY was $47.99 today when these options were sold.

Two possible overall performance results(including commissions) for the iShares MSCI South Korea ETF (EWY) transactions would be as follows:
Stock Purchase Cost: $19,740.95
= ($49.33*400+$8.95 commission)

Net Profit:
(a) Options Income: +$736.10
= (400*($.85+$1.05) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWY unchanged at $47.99): $-544.95
= ($47.99-$49.33)*400 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $49.00): -$140.95
= ($49.00-$49.33)*400 - $8.95 commissions

Total Net Profit(If EWY price unchanged at $47.99): +$191.15
= (+$736.10 +$0.00 -$544.95)
Total Net Profit(If EWY assigned at $49.00): +$595.15
= (+$736.10 +$0.00 -$140.95)

Absolute Return (If EWY unchanged at $47.99): +1.0%
= +$191.15/$19,740.95
Annualized Return If Unchanged (ARIU): +5.8%
= (+$191.15/$19,740.95)*(365/61 days)

Absolute Return if Exercised at $49.00: +3.0%
= +$595.15/$19,740.95
Annualized Return If Exercised (ARIE): +18.0%
= (+$587.10/$19,740.95)*(365/61 days)

10. Petrobras (PBR) -- Continuation Transaction

The transactions history to date for Petrobras (PBR) is as follows:
06/21/2010 Bought 300 PBR @ $39.34
06/21/2010 Sold 3 PBR Jul2010 $40.00 Calls @ $1.05
7/17/2010 Jul2010 Options Expired
Note: The closing price of PBR was $34.51 on expiration Friday.
07/22/2010 Sold 3 PBR Aug2010 $38.00 Calls @ $.55
Note: The price of PBR was $36.52 today when these options were sold.

Two possible overall performance results(including commissions) for the Petrobras (PBR) transactions would be as follows:
Stock Purchase Cost: $11,810.95
= ($39.34*300+$8.95 commission)

Net Profit:
(a) Options Income: +$457.60
= (300*($1.05+$.55) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PBR unchanged at $36.52): $-854.95
= ($36.52-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $38.00): -$410.95
= ($38.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $36.52): -$397.35
= (+$457.60 +$0.00 -$854.95)
Total Net Profit(If PBR assigned at $38.00): +$46.65
= (+$457.60 +$0.00 -$410.95)

Absolute Return (If PBR unchanged at $36.52): -3.4%
= -$397.35/$11,810.95
Annualized Return If Unchanged (ARIU): -20.1%
= (-$397.35/$11,810.95)*(365/61 days)

Absolute Return if Exercised at $38.00: +0.4%
= +$46.65/$11,810.95
Annualized Return If Exercised (ARIE): +2.4%
= (+$46.65/$11,810.95)*(365/61 days)

11. Symantec Corporation(SYMC) -- Continuation Transaction

The transactions history to date for Symantec Corporation(SYMC) is as follows:
06/23/2010 Bought 300 SYMC @ $14.70
06/23/2010 Sold 3 SYMC Jul2010 $15.00 Call Options @ $.31
7/17/2010 Jul2010 Options Expired
Note: The closing price of SYMC was $14.59 on expiration Friday.
07/22/2010 Sold 3 SYMC Aug2010 $15.00 Calls @ $.54
Note: The price of SYMC was $14.86 today when these options were sold.


Two possible overall performance results(including commissions) for the Symantec Corporation(SYMC) transactions would be as follows:
Stock Purchase Cost: $4,418.95
= ($14.70*300+$8.95 commission)

Net Profit:
(a) Options Income: +$232.60
= 300*($.31+$.54) - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $14.86):
+$39.05 = ($14.86-$14.70)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $15.00): +$81.05
= ($15.00-$14.70)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $14.86): +$271.85
= (+$232.80 +$0.00 +$39.05)
Total Net Profit(If stock price exercised at $15.00): +$313.85
= (+$232.80 +$0.00 +$81.05)

Absolute Return if Unchanged at $14.86: +6.2%
= +$271.85/$4,418.95
Annualized Return If Unchanged (ARIU) +38.1%
= (+$271.85/$4,418.95)*(365/59 days)

Absolute Return if Exercised at $15.00: +7.1%
= +$313.85/$4,418.95
Annualized Return If Exercised (ARIE) +43.9%
= (+$313.85/$4,418.95)*(365/59 days)

Gap Inc. (GPS) -- Closed

Last Friday was expiration Friday for July 2010. A decision was made today to sell the 300 shares owned in Gap Inc.(GPS). The Covered Calls Advisor has decided to trade out of this position primarily because the June 2010 monthly sales results were unchanged from the same month in the prior year -- this was a disappointment relative to other American teen retailers and the stock was pummeled as a result. Also, the consumer sector will remain well represented in the Covered Calls Advisor Portfolio with the remaining current holdings in Apple, Best Buy, and DSW.

1. Gap Inc.(GPS) -- Closed
The transactions history was as follows:
06/18/2010 Bought 300 GPS @ $21.55
06/18/2010 Sold 3 GPS Jul2010 $22.00 Calls @ $.60
07/17/2010 Jul2010 Options Expired
07/22/2010 Sold 300 GPS @ $18.28

The performance result(including commissions) for the GPS transactions was as follows:
Stock Purchase Cost: $6,473.95
= ($21.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$168.80
= (300*$.60 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock sold at $18.28):
-$989.95 = ($18.28-$21.55)*300 - $8.95 commissions

Total Net Profit(Stock sold at $18.28): -$821.15
= (+$168.80 +$0.00 -$989.95)

Absolute Return (Stock Sold at $18.28): -12.7%
= -$821.15/$6,473.95

Annualized Return (Stock Sold at $18.28): -136.2%
= (-$821.15/$6,473.95)*(365 days/34 days)

Establish ProShares UltraShort 20+ Year Treasury ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of ProShares UltraShort 20+ Year Treasury ETF (TBT) covered calls as follows:

Established ProShares UltraShort 20+ Year Treasury ETF (TBT) Covered Calls for Oct09:
07/19/2010 Bought 300 TBT @ $35.92
07/19/2010 Sold 3 TBT Aug2010 $38.00 Calls @ $.35

TBT seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury index. The fund normally invests at least 80% of assets to investments that, in combination, have economic characteristics that are inverse to those of the index. It also typically invests in taking positions in financial instruments, including derivatives that should have similar daily return characteristics as twice the inverse of the index.

This investment is based on the fact that current long-term treasury yields are near an all-time low -- as such they are likely to revert-to-the-mean and be substantially higher than their current levels in the future. The current high stock-to-bond yield difference in combination with the present, albeit modest, economic recovery should begin to reverse recent downward pressure on rates and begin to push Treasury yields higher during the next several months. Also in this regard, widely published fears of a double-dip recession are excessive. The present relatively high Treasury yield curve as well as the increase in the Conference Board's leading economic index over the past six months portends an extremely low likelihood of a double-dip recession.

Another indicator that the Covered Calls Advisor follows closely with regards to interest rates is the Money Multiplier, which is defined as the M2 Money Supply divided by the Fed's Monetary Base. After a precipitous decline from Fall 2008 to early 2010, this indicator bottomed at 4.05 in February 2010 and has begun to rise again (albeit slowly) to its current level of 4.31. Additionally, M2 has increased at a 4.0% annualized rate during the past 3 months versus a 1.9% increase over the past 12 months. If this increasing velocity trend continues, both overall economic activity and interest rates are likely to also move higher.

Some readers will ask: Why establish an out-of-the-money position in an inverse ETF instead of simply an in-the-money position in a direct investment (such as TLT)? In short, an out-of-the-money position in the inverse TBT ETF enables for the possibility of capital appreciation in the underlying ETF and thus a substantially higher potential return-on-investment than could be achieved from an in-the-money TLT position (since in-the-money covered calls positions eliminate the possibility of capital appreciation in the underlying equity) if interest rates do in fact trend slightly higher.

Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $10,784.95
= ($35.92*300+$8.95 commission)

Net Profit:
(a) Options Income: +$93.80
= 300*$.35 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $35.92):
-$8.95 = ($35.92-$35.92)*300 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $38.00): +$615.05
= ($38.00-$35.92)*300 - $8.95 commissions

Total Net Profit(If TBT unchanged at $35.92): +$84.85
= (+$93.80 +$0.00 -$8.95)
Total Net Profit(If TBT exercised at $38.00): +$708.85
= (+$93.80 +$0.00 +$615.05)

Absolute Return if Unchanged at $35.92: +0.8%
= +$84.85/$10,784.95
Annualized Return If Unchanged (ARIU) +8.7%
= (+$84.85/$10,784.95)*(365/33 days)

Absolute Return if Exercised at $38.00: +6.6%
= +$708.85/$10,784.95
Annualized Return If Exercised (ARIE) +72.7%
= (+$708.85/$10,784.95)*(365/33 days)

Downside Breakeven Price Point: $35.57
Downside Breakeven Protection: 1.0%

Establish Neutral Tandem Inc. Covered Calls

A new covered calls position was established 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 Aug2010:
07/19/2010 Bought 500 TNDM @ $11.78
07/19/2010 Sold 5 TNDM Aug2010 $12.50 Calls @ $.35

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. Because of the importance of this new initiative to their long-run success and fact that Neutral Tandem is a small cap company, this is considered to be a speculative investment.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 16.50 exceeds the minimum purchase threshold of 15.0 points for a new investment. The key value and profitability metrics are strong, and the company's growth potential (as described above), is compelling.





















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


Some possible overall performance results(including commissions) for the TNDM transactions would be as follows:
Stock Purchase Cost: $5,898.95
= ($11.78*500+$8.95 commission)

Net Profit:
(a) Options Income: +$162.30
= (500*$.35 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $11.78):
-$8.95 = ($11.78-$11.78)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $12.50): +$351.05
= ($12.50-$11.78)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $11.78): +$153.35
= (+$162.30 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $12.50): +$513.35
= (+$162.30 +$0.00 +$351.05)

Absolute Return if Unchanged at $11.78: +2.6%
= +$153.35/$5,898.95
Annualized Return If Unchanged (ARIU) +28.8%
= (+$153.35/$5,898.95)*(365/33 days)

Absolute Return if Exercised at $12.50: +8.7%
= +$513.35/$5,898.95
Annualized Return If Exercised (ARIE) +96.3%
= (+$513.35/$5,898.95)*(365/33 days)

July 2010 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of twelve covered calls positions with July 2010 expirations -- all twelve positions ended out-of-the-money. Decisions will be made to either sell the underlying equities, or to keep them and sell calls to establish Aug2010 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.

Overall Market Meter Rating Remains "Slightly Bullish"

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

















The current Market Meter Average of 3.89 is above the 3.67 of last month and as such remains at Slightly Bullish for establishing covered calls investing positions for the upcoming options expiration month of August 2010.

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 with the current July 2010 options expiration, new positions for Aug2010 expiration will be established in accordance with this guideline.

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 or 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 to All,
Jeff

Returns -- Through June 2010

1. June2010 Year-to-Date Results:

As shown in the table below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the Russell 3000 benchmark by 5.51 percentage points [-12.33%-(-6.82%)] so far in 2010:












CCAP Absolute Return (Jan 1st through June 30th, 2010) = -12.33%
($241,523.74-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through June 30th, 2010) = -6.82%
($60.83-$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 Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all positions in the CCAP are also held in the personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

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. Here's an example to aid understanding of how the overall portfolio performance is determined:
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.

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.

Regards and Godspeed,
Jeff