Returns -- Through September 2010

1. September 2010 Year-to-Date Results:

September was a blockbuster month in the stock market with an 8.91% increase in the Russell 3000 index. By selling near-month calls that on average were approximately 2% out-of-the-money, the Covered Calls Advisor Portfolio was able to participate in some of the capital gains achieved by the market and thus also achieved strong performance in September with a 8.74% increase.
As shown in the table below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the Russell 3000 benchmark by 5.25 percentage points [+3.32%-(-1.93%)] so far in 2010:















CCAP Absolute Return (Jan 1st through September 30th, 2010) = -1.93%
($270,175.07-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through September 30th, 2010) = +3.32%
($67.45-$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.

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 Nov2010:
09/29/2010 Bought 500 MSFT @ $24.43
09/29/2010 Sold 5 MSFT Nov2010 $25.00 Calls @ $.76
Soon after today's market open, MSFT was trading at about 1.0% below yesterday's close, and the Covered Calls Advisor took that opportunity to purchase the MSFT shares. About 4 hours later, when the price of MSFT had risen to $24.60, the Covered Calls Advisor legged-in to this covered calls position by selling the Nov2010 $25.00 call options at $.76.

This position doubles the current holdings in the CCAP from 500 to 1,000 shares. Despite the fact that the Covered Calls Advisor almost always establishes near-month covered calls positions, in this instance the second available expiration month (Nov2010) was selected to:
(1) take advantage of the higher implied volatility in the Nov2010 options (compared with that of the Oct2010 expiration). This is the case primarily because the next quarterly earnings report is scheduled for release after Oct2010 expiration but prior to Nov2010 expiration, and the added uncertainty is reflected in the expanded options premiums available for Nov2010 expiration. As described below, this advisor is reasonably confident that Microsoft will meet or exceed analysts' expectations (Also note: MSFT has exceeded earnings per share expectations in each of the last 4 reporting quarters); and (2) Dividend Capture: Microsoft recently raised their quarterly dividend by 23% to $.16 and they will go ex-dividend on Nov. 16th, which is three days prior to the Nov2010 options expiration.

These transactions now complete the establishing of covered calls positions prior to Oct2010 expiration. The Covered Calls Advisor Portfolio is now 94 percent invested in covered calls and is 6% in cash. The cash position is available for rolling up an existing position (at a net debit if necessary) if the appropriate circumstance should arise to do so.

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. In the most recent quarterly earnings report, 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. 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.

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 35% 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). Microsoft recently completed a $4.75 billion bond offering at extremely low interest rates, thus demonstrating not only their financial strength in the marketplace, but also (and more importantly in this advisor's opinion) their financial savvy. Given the already high cash level on their balance sheet and their terrific ongoing cash flow, there is substantial cause to wonder about the possibility of a large acquisition [Perhaps RIMM? or SAP? or Yahoo?(again!)].

Most importantly for this advisor, the Buy Alerts spreadsheet below (includes financials through the 2010 fiscal 4th quarter) shows that MSFT is a very attractive at this time since the total points rating of 18.12 is well above the Covered Calls Advisor's "Buy" threshold of 16.0.





















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: $12,223.95
= ($24.43*500+$8.95 commission)

Net Profit:
(a) Options Income: +$367.30
= (500*$.76 - $12.70 commissions)
(b) Dividend Income: +$80.00 =($.16 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $24.43):
-$8.95 = ($24.43-$24.43)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $25.00): +$276.05
= ($25.00-$24.43)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.43): +$438.35
= (+$367.30 +$80.00 -$8.95)
Total Net Profit(If stock price assigned at $25.00): +$723.35
= (+$367.30 +$80.00 +$276.05)

Absolute Return if Unchanged at $24.43: +3.6%
= +$438.35/$12,223.95
Annualized Return If Unchanged (ARIU) +25.2%
= (+$438.35/$12,223.95)*(365/52 days)

Absolute Return if Assigned at $25.00: +5.9%
= +$723.35/$12,223.95
Annualized Return If Assigned (ARIA): +41.5%
= (+$723.35/$12,223.95)*(365/52 days)

Downside Breakeven Price Point: $23.51 = [$24.43-($.76 option income +$.16 dividend)]
Downside Breakeven Protection: 3.8%

Establish Oshkosh Corp. Covered Calls

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

Established Oshkosh Corp.(OSK) Covered Calls for Oct2010:
09/27/2010 Bought 300 OSK @ $26.46
09/27/2010 Sold 3 OSK Oct2010 $27.00 Calls @ $.80

Oshkosh Corporation designs, manufactures, and markets a range of access equipment, specialty vehicles, and vehicle bodies worldwide and operates in four busines segments. Its Defense segment manufactures severe-duty, heavy, and medium-payload tactical trucks for the Department of Defense, including hauling tanks, missile systems, ammunition, fuel, and cargo for combat units. The company's Access Equipment segment was added the Access Equipment segment in December 2006 when it purchased JLG for $3.2 billion. The segment manufactures aerial work platforms, scissor lifts and telehandlers (a mix between a cherry-pickers and a forklifts). Its Fire and Emergency segment provides custom and commercial fire apparatus and emergency vehicles, including pumpers, aerial and ladder trucks, tankers, light and heavy-duty rescue vehicles, wildland rough terrain response vehicles, mobile command and control centers, bomb squad vehicles, hazardous materials control vehicles, and other emergency response vehicles. Its Commercial segment produces and sells front and rear discharge concrete mixers, and portable and stationary concrete batch plants for the concrete ready-mix industry; and field service vehicles and truck-mounted cranes for the construction, equipment dealer, building supply, utility, tire service, and mining industries. This segment also offers lease financing to concrete mixer customers, concrete batch plant customers, and commercial waste haulers. The company was formerly known as Oshkosh Truck Corporation and changed its name to Oshkosh Corporation in February 2008. Oshkosh Corporation was founded in 1917 and is based in Oshkosh, Wisconsin.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 17.90 exceeds the minimum purchase threshold of 16.0 points for a new investment. As shown below, the momentum factors (especially pricing momentum) are weak, but this weakness is more than overcome by the very strong value, growth, and profitability characteristics of Oshkosh Corp:





















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


Some possible overall performance results(including commissions) for this Oshkosh position would be as follows:
Stock Purchase Cost: $7,946.95
= ($26.46*300+$8.95 commission)

Net Profit:
(a) Options Income: +$228.80
= (300*$.80 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $26.46):
-$8.95 = ($26.46-$26.46)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $27.00): +$153.05
= ($27.00-$26.46)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $26.46): +$219.85
= (+$228.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $27.00): +$381.85
= (+$228.80 +$0.00 +$153.05)

Absolute Return if Unchanged at $26.46: +2.8%
= +$219.85/$7,946.95
Annualized Return If Unchanged (ARIU) +53.1%
= (+$219.85/$7,946.95)*(365/19 days)

Absolute Return if Assigned at $27.00: +4.8%
= +$381.85/$7,946.95
Annualized Return If Assigned (ARIA) +68.9%
= (+$381.85/$7,946.95)*(365/19 days)

Establish Medicis Pharmaceutical Corp. Covered Calls

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

Established Medicis Pharmaceutical Corp. (MRX) Covered Calls for Oct2010:
09/23/2010 Bought 300 MRX @ $29.27
09/23/2010 Sold 3 MRX Oct2010 $30.00 Calls @ $.55

Medicis Pharmaceutical Corporation, a specialty pharmaceutical company, engages in the development and marketing of dermatology products in the United States, Canada, and Europe. Acne and acne-related dermatological products accounted for 70% of net revenues, but its relatively new aesthetic product Dysport is an injectable anti-wrinkle treatment that is showing good potential as a Botox competitor. The company's growth strategy centers on expanding the market share of existing products, introducing new products, making synergistic acquisitions, and forming collaborative partnerships. Medicis was founded in 1987 and is headquartered in Scottsdale, Arizona.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 19.37 is substantially above the minimum purchase threshold of 16.0 points for a new investment. As shown below, the value, profitability, and momentum factors are all very strong for Medicis:






















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


Some possible overall performance results(including commissions) for the Medicis transactions would be as follows:
Stock Purchase Cost: $8,789.95
= ($29.27*300+$8.95 commission)

Net Profit:
(a) Options Income: +$153.80
= (300*$.55 - $11.20 commissions)
(b) Dividend Income: +$18.00 ($.06*300 shares). Goes Ex-Dividend on 9/29/2010.
(c) Capital Appreciation (If stock price unchanged at $29.27):
-$8.95 = ($29.27-$29.27)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $30.00): +$210.05
= ($30.00-$29.27)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.27): +$162.85
= (+$153.80 +$18.00 -$8.95)
Total Net Profit(If stock price exercised at $30.00): +$381.85
= (+$153.80 +$18.00 +$210.05)

Absolute Return if Unchanged at $29.27: +1.9%
= +$162.85/$8,789.95
Annualized Return If Unchanged (ARIU) +29.4%
= (+$162.85/$8,789.95)*(365/23 days)

Absolute Return if Assigned at $30.00: +4.3%
= +$381.85/$8,789.95
Annualized Return If Assigned (ARIA) +68.9%
= (+$381.85/$8,789.95)*(365/23 days)

Establish Research In Motion Ltd. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Research In Motion Ltd. (RIMM) covered calls as follows:

Established Research In Motion Ltd. (RIMM) Covered Calls for Oct2010:
09/23/2010 Bought 300 RIMM @ $46.55
09/23/2010 Sold 3 RIMM Oct2010 $47.50 Calls @ $1.64
The Covered Calls Advisor's current Overall Market Meter is Slightly Bullish, and the corresponding strategy is to establish near-month covered calls at about 2% out-of-the-money. Thus, a limit order was in place to purchase RIMM only if it declined to $46.55 (which is exactly 2.0% below the $47.50 strike price). This order was executed in early trading today. Fortunately, this was the lowest price in today's trading range for RIMM -- and this is the first time since this Covered Calls Advisor blog was started in 2007 that a purchase was made at the lowest price for the day.

Research In Motion Ltd. (RIMM), founded in 1984, designs, manufactures, and markets wireless solutions for the worldwide mobile communications market and is best known for its BlackBerry wireless platform. Introduced in 1999, BlackBerry has found popularity primarily in the enterprise market (large corporations and government institutions), but has recently had success penetrating the consumer market to the point that now about half of total sales are consumer handsets. RIMM has over 50 million BlackBerry subscribers and strong growth continues based on the company's forecast that it will add 5.0 to 5.4 million net new subscribers during the current quarter. BlackBerry handheld units account for 79% of total revenue and services account for the bulk of the remaining sales. The portion of sales obtained internationally has grown to its current level of about 45%.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 19.93 greatly exceeds the minimum purchase threshold of 16.0 points for a new investment and the key value and profitability metrics are both very strong. The company's cash flow is also strong, and it has used some of its cash to buy back about 8% of total shares outstanding in the first half of 2010 alone. Additionally (and very importantly), it is investing in future growth via its substantial research and development efforts. One result of these research efforts is expected to be its entry into the burgeoning tablet market. RIMM's product is rumored to be called the BlackPad and its release could be announced as soon as next week.

As part of the background research done on RIMM, the Covered Calls Advisor found these three recent articles to be especially worthwhile in confirming the current value available in purchasing RIMM stock:
1. The Peridot Capitalist blog
2. Barel Karsan Value Investing blog
3. Trefis' RIMM valuation article






















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


Some possible overall performance results(including commissions) for the RIMM transactions would be as follows:
Stock Purchase Cost: $13,973.95
= ($46.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$480.80
= (300*$1.64 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $46.55):
-$8.95 = ($46.55-$46.55)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $47.50): +$276.05
= ($47.50-$46.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.55): +$471.85
= (+$480.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $47.50): +$756.85
= (+$480.80 +$0.00 +$276.05)

Absolute Return if Unchanged at $46.55: +3.4%
= +$471.85/$13,973.95
Annualized Return If Unchanged (ARIU) +53.6%
= (+$471.85/$13,973.95)*(365/23 days)

Absolute Return if Assigned at $47.50: +5.4%
= +$756.85/$13,973.95
Annualized Return If Assigned (ARIA) +86.0%
= (+$756.85/$13,973.95)*(365/23 days)

Establish Guess? Inc. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Guess? Inc.(GES) covered calls. Guess was one of the covered calls positions that was called away last Friday at Sep2010 options expiration and today it was decided to re-establish a new position for Oct2010 expiration as follows:

Established Guess? Inc.(GES) Covered Calls for Oct2010:
09/22/2010 Bought 300 GES @ $37.75
09/22/2010 Sold 3 GES Oct2010 $40.00 Calls @ $.55

Guess?, Inc. designs, markets, distributes and licenses its lifestyle collections of contemporary apparel and accessories for a style-conscious 18-to-32-year-old target audience of men and women around the world. In addition to wholesale and retail distribution channels, GES operates in 67 countries via its licensing and distributor partnerships. Apparel and accessories design teams are located in California in the U.S., and in Florence and Bologna, Italy. It offers collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets, and knitwear. The company also grants licenses to manufacture and distribute a range of products that include eyewear, watches, handbags, footwear, kids' and infants' apparel, leather apparel, swimwear, fragrance, jewelry, intimate apparel, and other fashion accessories. Guess , Inc. markets its apparel under various trademarks, including GUESS, GUESS , GUESS U.S.A., GUESS Jeans, GUESS and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO, and Gc. The company sells its products through retail, wholesale, e-commerce, and licensing distribution channels. Guess operates 425 stores in North America and 96 stores abroad; licensees and distributors operated another 594 non-North American stores.

The Buy Alerts spreadsheet below shows that GES is an attractive value at this time since the total points rating of 16.40 exceeds the Covered Calls Advisor's desired "Buy" threshold of 16.0. Also very importantly, at its current price, the growth potential of the Guess brand seems under-appreciated by investors based on its potential growth drivers related to: (1) rapid expansion in Asia; (2) expanding new product categories; and (3) potential new store formats.





















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

Some possible overall performance results(including commissions) for the Guess? Inc.(GES) transactions would be as follows:
Stock Purchase Cost: $11,333.95
= ($37.75*300+$8.95 commission)

Net Profit:
(a) Options Income: +$153.80
= (300*$.55 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $37.75):
-$8.95 = ($37.75-$37.75)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $40.00): +$666.05
= ($40.00-$37.75)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $37.75): +$144.85
= (+$153.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $40.00): +$819.85
= (+$153.80 +$0.00 +$666.05)

Absolute Return if Unchanged at $37.75: +1.3%
= +$144.85/$11,333.95
Annualized Return If Unchanged (ARIU) +19.4%
= (+$144.85/$11,333.95)*(365/24 days)

Absolute Return if Exercised at $40.00: +7.2%
= +$819.85/$11,333.95
Annualized Return If Exercised (ARIE) +110.0%
= (+$819.85/$11,333.95)*(365/24 days)

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. TNDM was one of the covered calls positions that was called away last Friday at Sep2010 options expiration and today it was decided to re-establish a new position for Oct2010 expiration as follows:

Established Neutral Tandem Inc. (TNDM) Covered Calls for Aug2010:
09/22/2010 Bought 500 TNDM @ $12.48
09/22/2010 Sold 5 TNDM Oct2010 $12.50 Calls @ $.63

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. To this end, the recently announced Tinet acquisition will broaden their offering worldwide and should also significantly accelerate the customer adoption rate and thus the very important development of the network effect. Also positive is the fact that the acquisition will be fully funded with cash and will be accretive to earnings immediately.

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 tremendous. 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 as 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: $6,248.95
= ($12.48*500+$8.95 commission)

Net Profit:
(a) Options Income: +$302.30
= (500*$.63 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $12.48):
-$8.95 = ($12.48-$12.48)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $12.50): +$1.05
= ($12.50-$12.48)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $12.48): +$293.35
= (+$302.30 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $12.50): +$303.35
= (+$302.30 +$0.00 +$1.05)

Absolute Return if Unchanged at $12.48: +4.7%
= +$293.35/$6,248.95
Annualized Return If Unchanged (ARIU) +71.4%
= (+$293.35/$6,248.95)*(365/24 days)

Absolute Return if Exercised at $12.50: +4.9%
= +$303.35/$6,248.95
Annualized Return If Exercised (ARIE) +73.8%
= (+$303.35/$6,248.95)*(365/24 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. TBT was one of the covered calls positions that was called away last Friday at Sep2010 options expiration and today it was decided to re-establish a new position for the Oct2010 expiration as follows:

Established ProShares UltraShort 20+ Year Treasury ETF (TBT) Covered Calls for Oct2010:
09/22/2010 Bought 300 TBT @ $31.75
09/22/2010 Sold 3 TBT Oct2010 $32.00 Calls @ $.94

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 4.36. Additionally, M2 has increased at a 3.6% 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.

The Federal Reserve Board and also Congress will have some influence on the ultimate deflation/inflation outcome. For their part, the Federal Reserve has recently indicated that they might use further quantitative easing to prevent deflation. This advisor believes that the Fed will decide that approach will not be necessary since the pace of this recovery is actually slightly better than that of the past two recessions (See Link). Rather, the Fed will more likely begin to gradually support their higher inflation target. As for Congress, Warren Buffett said it best in his "The Greenback Effect" editorial in the New York Times almost exactly one year ago: "Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes."

In short, for the reasons described above, this advisor believes the interest rates pendulum has now begun a swing back from the past three decades of rate declines, and will soon begin to reverse in the direction of future increases in both inflation and interest rates.

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: $9,533.95
= ($31.75*300+$8.95 commission)

Net Profit:
(a) Options Income: +$270.80
= 300*$.94 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $31.75):
-$8.95 = ($31.75-$31.75)*300 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $32.00): +$66.05
= ($32.00-$31.75)*300 - $8.95 commissions

Total Net Profit(If TBT unchanged at $31.75): +$261.85
= (+$270.80 +$0.00 -$8.95)
Total Net Profit(If TBT exercised at $32.00): +$336.85
= (+$270.80 +$0.00 +$66.05)

Absolute Return if Unchanged at $31.75: +2.7%
= +$261.85/$9,533.95
Annualized Return If Unchanged (ARIU) +41.8%
= (+$261.85/$9,533.95)*(365/24 days)

Absolute Return if Exercised at $32.00: +3.5%
= +$336.85/$9,533.95
Annualized Return If Exercised (ARIE) +53.7%
= (+$336.85/$9,533.95)*(365/24 days)

Downside Breakeven Price Point: $30.81
Downside Breakeven Protection: 2.7%

Domtar Corp. (UFS), iShares MSCI China ETF (FXI), and Petrobras (PBR) -- Continuation Transactions

This past Friday was expiration Friday for September 2010 options. In the Covered Calls Advisor's most recent blog post, it was noted that of the nine covered calls positions with Sep2010 expirations, six were in-the-money at expiration and were therefore exercised and the stocks were called away, and three positions ended out-of-the-money. The three out-of-money positions were Domtar Corp. (UFS), iShares MSCI China ETF (FXI), and Petrobras (PBR). Today, a decision was made to retain the shares in these three positions and to establish covered calls position with Oct2010 expirations. The transactions history for each position as well as some possible results for each of these investments are as follows:

1. Domtar Corp.(UFS) -- Continuation
The transactions history 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.
08/13/2010 Buy-to-Close (BTC) 4 UFS Aug2010 $55.00 Call Options @ $5.70
08/12/2010 Sell-to-Open (STO) 4 UFS Sep2010 $65.00 Call Options @ $1.85
Note: The price of UFS was $61.38 today when these options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 4 UFS Oct2010 $65.00 Call Options @ $2.10
Note: The price of UFS was $63.70 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: +$160.25
= (400*($1.10+$1.20-$5.70+$1.85+$2.10) - 5*$11.95 commissions)
(b) Dividend Income: +$100.00 =($.25*400) with ex-dividend of 9/13/2010
(c) Capital Appreciation (If UFS unchanged at $63.70): +$3,431.05
= ($63.70-$55.10)*400 - $8.95 commissions
(c) Capital Appreciation (If UFS assigned at $65.00): +$3,951.05
= ($65.00-$55.10)*400 - $8.95 commissions

Total Net Profit(If UFS price unchanged at $63.70): +$3,691.30
= (+$160.25 +$100.00 +$3,431.05)
Total Net Profit(If UFS assigned at $65.00): +$4,211.30
= (+$160.25 +$100.00 +$3,951.05)

Absolute Return (If UFS unchanged at $63.70): +16.7%
= +$3,691.30/$22,048.95
Annualized Return If Unchanged (ARIU): +53.1%
= (+$3,691.30/$22,048.95)*(365/115 days)

Absolute Return (If Assigned at $65.00): +19.1%
= +$4,211.30/$22,048.95
Annualized Return If Exercised (ARIE): +60.6%
= (+$4,211.30/$22,048.95)*(365/115 days)


2. iShares MSCI China ETF (FXI) -- Continuation
The transactions history 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of FXI was $40.54 on expiration Friday.
09/02/2010 Sold 11 FXI Sep2010 $42.00 Call Options @ $.20
Note: The price of FXI was $40.52 today when these options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 11 FXI Oct2010 $43.00 Call Options @ $.62
Note: The price of FXI was $42.19 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: +$1,631.40
= (1,100*($.71+$.20+$.62) + 700*$.73 + 4008$.40 - ($17.20*2 +$14.20 +$11.95) commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI unchanged at $42.19): +$365.05
= ($42.19-$41.85)*1,100 - $8.95 commissions
(c) Capital Appreciation (If all FXI shares are assigned at $43.00): +$1,256.05 = ($43.00-$41.85)*1,100 - $8.95 commissions

Total Net Profit(If FXI price unchanged at $42.19): +$1,996.45
= (+$1,631.40 +$0.00 +$365.05)
Total Net Profit(If FXI assigned at $43.00): +$2,887.45
= (+$1,631.40 +$0.00 +$1,256.05)

Absolute Return (If FXI unchanged at $42.19): +4.3%
= +$1,996.45/$46,043.95
Annualized Return If Unchanged (ARIU): +13.5%
= (+$1,996.45/$46,043.95)*(365/117 days)

Absolute Return (If Assigned at $43.00): +6.3%
= +$2,887.45/$46,043.95
Annualized Return: +19.6%
= (+$2,887.45/$46,043.95)*(365/117 days)


3. Petrobras (PBR) -- Continuation
The transactions history 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.
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 3 PBR Oct2010 $37.00 Call Options @ $.63
Note: The price of PBR was $35.24 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: +$798.20
= (300*($1.05+$.55+$.58+$.63) - 4*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PBR unchanged at $35.24): $-1,238.95
= ($35.24-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $37.00): -$710.95
= ($37.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $35.24): -$440.75
= (+$798.20 +$0.00 -$1,238.95)
Total Net Profit(If PBR assigned at $37.00): +$87.25
= (+$798.20 +$0.00 -$710.95)

Absolute Return (If PBR unchanged at $35.24): -3.7%
= -$440.75/$11,810.95
Annualized Return If Unchanged (ARIU): -11.6%
= (-$630.55/$11,810.95)*(365/117 days)

Absolute Return (If Assigned at $37.00): +0.7%
= +$87.25/$11,810.95
Annualized Return If Assigned: +2.3%
= (+$87.25/$11,810.95)*(365/117 days)

September 2010 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of nine covered calls positions with September 2010 expirations, with the following results:

- Six positions (Apple, Best Buy, Cubist Pharmaceuticals, Guess? Inc., Neutral Tandem, and ProShares UltraShort 20+ Year Treasury ETF) closed in-the-money. The calls were exercised and the shares of AAPL, BBY, CBST, GES, TNDM, and TBT were called away. As shown in detail below, the annualized returns for these closed positions were:
(1) Apple Inc.(AAPL) -- +55.1%
(2) Best Buy Corp Inc.(BBY) -- +3.7%
(3) Cubist Pharmaceuticals (CBST) -- +55.3%
(4) Guess? Inc.(GES) -- +161.2%
(5) Neutral Tandem Inc.(TNDM) -- +56.5%
(6) ProShares UltraShort 20+ Year Treasury ETF (TBT) -- -35.4%

- Three positions in the CCAP [Domtar Corp.(UFS), iShares MSCI China ETF (FXI), and Petrobras (PBR)] ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Oct2010 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 six covered calls positions that were assigned (called away) upon Sep2010 expiration are as follows:

1. Apple Inc.(AAPL) -- Closed
The transactions history was 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 Option 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 Option 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of AAPL was $249.64 on expiration Friday.
09/01/2010 Sold 1 AAPL Sept2010 $270.00 Call Option @ $.68
Note: The price of AAPL was $251.35 today when this option was sold.
09/18/2010 100 shares of AAPL were in-the-money and the shares were called away (assigned) at $270.00. Note: The closing price of AAPL was $275.37 on expiration Friday.

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

Net Profit:
(a) Options Income: -$937.90
= (100*($1.57-$12.20+$3.40-$19.00+$9.40+$9.50-$13.90+$7.50+$4.35+$.68) - 7*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock called away at $270.00): +$7,123.35
= ($270.00-$198.677)*100 - $8.95 commissions

Total Net Profit(Stock assigned at $270.00): +$6,185.45
= (-$937.90 +$0.00 +$7,123.35)

Absolute Return (Stock assigned at $270.00): +31.1%
= +$6,185.45/$19,876.65
Annualized Return: +55.1%
= (+$6,185.45/$19,876.65)*(365/206 days)


2. Best Buy Corp Inc.(BBY) -- Closed
The transactions history was 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of BBY was $32.50 on expiration Friday.
09/02/2010 Sold 4 BBY Sep2010 $34.00 Call Options @ $.64
Note: The price of BBY was $33.07 today when these options were sold.
09/18/2010 400 shares of BBY were in-the-money and the shares were called away (assigned) at $34.00. Note: The closing price of BBY was $37.15 on expiration Friday.

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

Net Profit:
(a) Options Income: +$972.15
= 400*($.82+$1.06+$.64) - 3*$11.95
(c) Capital Appreciation (BBY assigned at $34.00): -$840.95
= ($34.00-$36.08)*400 - $8.95 commissions

Total Net Profit(If BBY assigned at $34.00): +$131.20
= (+$972.15 +$0.00 -$840.95)

Absolute Return if BBY Exercised at $34.00: +0.9%
= +$131.20/$14,440.95
Annualized Return If Exercised (ARIE): +3.7%
= (+$131.20/$14,440.95)*(365/89 days)


3. Cubist Pharmaceuticals (CBST) -- Closed
The transactions history for Cubist Pharmaceuticals(CBST) was 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.
08/21/2010 Aug2010 Options Expired
Note: The closing price of CBST was $22.22 on expiration Friday.
09/01/2010 Sold 3 CBST Sept2010 $22.50 Call Options @ $.60
Note: The price of CBST was $22.48 today when these call options were sold.
09/18/2010 300 shares of CBST were in-the-money and the shares were called away (assigned) at $22.50. Note: The closing price of CBST was $23.53 on expiration Friday.

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

Net Profit:
(a) Options Income: +$476.40
= (300*($.50+$.60+$.60) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock exercised at $22.50): +$348.05
= ($22.50-$21.31)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $22.50): +$824.45
= (+$476.40 +$0.00 +$348.05)

Absolute Return (Stock Assigned at $22.50): +12.9%
= +$824.45/$6,401.95
Annualized Return: +55.3%
= (+$824.45/$6,401.95)*(365/85 days)


4. Guess? Inc.(GES) -- Closed
The transactions history for Guess? Inc.(GES) was as follows:
09/07/2010 Bought 300 GES @ $33.79
09/07/2010 Sold 3 GES Sep2010 $35.00 Calls @ $.50
09/18/2010 300 shares of GES were in-the-money and the shares were called away (assigned) at $35.00. Note: The closing price of GES was $38.11 on expiration Friday.

The overall performance results(including commissions) for the Guess? Inc.(GES) transactions was as follows:
Stock Purchase Cost: $10,145.95
= ($33.79*300+$8.95 commission)

Net Profit:
(a) Options Income: +$138.80
= (300*$.50 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (Stock assigned at $35.00): +$354.05
= ($35.00-$33.79)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $35.00): +$492.85
= (+$138.80 +$0.00 +$354.05)

Absolute Return (Stock Exercised at $35.00): +4.9%
= +$492.85/$10,145.95
Annualized Return: +161.2%
= (+$492.85/$10,145.95)*(365/11 days)


5. Neutral Tandem Inc.(TNDM) -- Closed
The transactions history for Neutral Tandem Inc.(TNDM) was as follows:
07/19/2010 Bought 500 TNDM @ $11.78
07/19/2010 Sold 5 TNDM Aug2010 $12.50 Calls @ $.35
08/21/2010 Aug2010 Option Expired
Note: The closing price of TNDM was $12.09 on expiration Friday.
09/02/2010 Sold 5 TNDM Sep2010 $12.50 Call Options @ $.15
Note: The price of TNDM was $11.61 today when these options were sold.
09/18/2010 500 shares of TNDM were in-the-money and the shares were called away (assigned) at $12.50. Note: The closing price of TNDM was $12.87 on expiration Friday.

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

Net Profit:
(a) Options Income: +$224.60
= (500*($.35+$.15) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $12.50): +$351.05
= ($12.50-$11.78)*500 - $8.95 commissions

Total Net Profit(Stock assigned at $12.50): +$575.65
= (+$224.60 +$0.00 +$351.05)

Absolute Return (Stock Assigned at $12.50): +9.8%
= +$575.65/$5,898.95
Annualized Return: +56.5%
= (+$575.65/$5,898.95)*(365/63 days)


6. ProShares UltraShort 20+ Year Treasury ETF (TBT) -- Closed
The transactions history for ProShares UltraShort 20+ Year Treasury ETF (TBT) was as follows:
07/19/2010 Bought 300 TBT @ $35.92
07/19/2010 Sold 3 TBT Aug2010 $38.00 Calls @ $.35
08/21/2010 Aug2010 Option Expired
Note: The closing price of TBT was $31.69 on expiration Friday.
09/02/2010 Sold 3 TBT Sep2010 $33.00 Call Options @ $.55
Note: The price of TBT was $32.04 today when these options were sold.
09/18/2010 300 shares of TBT were in-the-money and the shares were called away (assigned) at $33.00. Note: The closing price of TBT was $33.80 on expiration Friday.

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

Net Profit:
(a) Options Income: +$247.60
= 300*($.35+$.55) - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (TBT assigned at $33.00): -$884.95
= ($33.00-$35.92)*300 - $8.95 commissions

Total Net Profit (TBT assigned at $33.00): -$637.35
= (+$247.60 +$0.00 -$884.95)

Absolute Return (TBT Assigned at $33.00): -5.9%
= -$637.35/$10,784.95
Annualized Return: -35.4%
= (-$637.35/$10,784.95)*(365/61 days)

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 4.22 is greater than the 3.89 of last month, but as such remains at Slightly Bullish (Note: the range for Slightly Bullish is from 3.5 to 4.5) for establishing covered calls investing positions for the upcoming options expiration month of October 2010. Of the nine factors used, six remained unchanged from last month and three changed. The three that changed were:
- Baltic Dry Index improved from Neutral to Bullish
- Price Trend improved from Neutral to Bullish
- P/E Ratios deteriorated from Slightly Bullish to Neutral

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bullish sentiment is to "on-average sell 2% out-of-the-money covered calls for the nearest expiration month." So with the September 2010 options expiration this week, new positions for Oct2010 expiration will be established in accordance with this guideline.

The Slightly Bullish sentiment as described above is also consistent with the Covered Calls Advisor's perception of where we are on the "Investor's Sentiment Cycle" shown here on the left. This is a very interesting and useful chart because it recognizes both the cyclical and emotional nature of the stock market. Where are we located on this chart now? To this advisor, the credit crisis induced dramatic market decline in 2008 and early 2009 hit bottom in March 2009 ("bear market ends" trough on the chart below corresponding to emotional "despair"). It seems to this advisor that we have progressed to the "hope" stage along this cyclical roller coaster curve and that we might move upward to "relief" over the next several months if the dreaded (and highly unlikely in this advisor's opinion) double-dip recession is avoided. Being anywhere along the green line on the chart signifies periods of relative bullishness for the stock market, while the red line denotes relative bearishness. Here is an interesting survey conducted of 100 investing professionals who explained where they think we are now on the curve: link. So, if what I believe to be true is correct and we are now in the "hope" phase, then this chart would tend to confirm the current "Overall Market Meter" investing posture of "Slightly Bullish".

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

Your comments 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,
Jeff

Exploiting Our Covered Calls Investing "Edges"

For any given investing strategy, the investor should try to identify any and all discernible advantages that particular strategy has when compared against a basic buy-and-hold approach. Once these potential advantages are identified, it is important to establish an investing process that attempts to exploit these advantages. The term that this Covered Calls Advisor prefers for the specific advantages identified is our investing "edges". Identifying and then establishing a disciplined investing process to exploit these "edges" is what enables us to attain additional profit beyond that which would otherwise be obtained through a passive buy-and-hold strategy.

So what are our "edges" as covered calls investors? It is this advisor's belief that there are six edges, each of which provides an opportunity to achieve excess returns:

1. Specialize in Covered Calls Investing -- Here is the introduction to one of my prior blog posts: "One of the most important investing lessons I've learned is to select an investing strategy that you are most comfortable with and stay with it. That is, do not try to be "a jack-of-all-trades and a master of none." Instead, try to continually increase your knowledge related to the strategy you are using and seek to become an expert at it." This fundamental belief in combination with the performance results achieved is what has sustained my commitment to covered calls investing during the past three decades -- thus this Covered Calls Advisor's investing motto of "Stick with Covered Calls."
I was recently reminded of my uncommon commitment to covered calls (and the investing edge it provides) while reading this article: (See "7 Things To Do To Improve"). Charles Kirk concludes in item #7 titled "Become a specialist, not a jack of all trades", by saying "So, find something that interests you more than anything else and concentrate all of your time and focus on that one thing. That path will lead you to developing a clear edge that will provide huge profits to you down the line." I hope you agree with me and will consider making covered calls investing "that one thing" you will "focus on" to achieve a "clear edge".

2. Active Management -- The typical buy-and-hold investing strategy is a passive investing approach since stocks or mutual funds are normally purchased and held for a period of years. Likewise, covered calls investing can also be deployed passively, and passive covered-calls-related indices (for example BXM, BXY, and PUT) have been developed. Research has shown that the long-term returns performance of these indices are approximately equivalent to that of a comparable buy-and-hold investment. But as individual investors, we have the opportunity to be "active" (contrasted with "passive") managers of our covered calls portfolios. As active managers, an associated "edge" comes from making timely adjustments (i.e. rolling decisions) related to our existing covered calls positions.

3. Value-Oriented Stock Selection -- Good stock selection is Job #1 for the covered calls investor. Unlike broad-based indices such as the S&P 500 or BXM, we seek to purchase only value-oriented individual equities, which are likely to continue in the future (as they have historically), to outperform the broader indices (such as the S&P 500).

4. Adjust Moneyness of Strike Prices -- As active covered calls investors, we have the flexibility to sell out-of-the-money covered calls when our outlook is more bullish and in-the-money when bearish; whereas the mechanical indices sell the same moneyness every month (for example, only at-the-money calls in the case of BXM). With even modest success at adjusting moneyness to coincide with our overall market outlook, incremental return results are achieved.

5. Sell Higher-Than-Average Volatility -- Because of the large cap nature and the diversification inherent in the S&P 500 index, its Volatility Index(VIX) is lower than most individual stocks. Selling options on individual equities (with somewhat higher implied volatility than VIX) provides covered calls investors with somewhat higher options income (and thus somewhat higher overall portfolio returns) than would be achieved by either (1) buy-and-hold investing directly in the S&P 500; or (2) selling S&P 500 options (such as is done with the BXM, BXY, and PUT indices).

6. Exploiting the Volatility Risk Premium -- Academic research has demonstrated that the implied volatility of option prices is, on average, higher than the actual realized volatility. Thus, by selling options to establish our covered calls positions (NOT buying options), we covered calls investors exploit this effect (another "edge" versus buy-and-hold investors) and profit from it.

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From my experience, my best estimate is that over a long-term investing horizon (say 10+ years), a disciplined covered calls investor that is cognizant of the six "edges" described above, and works to take advantage of them might expect (on average over the years), to outperform a buy-and-hold benchmark by about 3% to 5% per year. This extra return might not sound especially impressive, but the power of compounding investment returns is substantial. Suppose that over the next decade a buy-and-hold S&P 500 investor averages an 8% annualized return; and a covered calls investor averages a 12% return. Then, an initial $100,000 portfolio would grow (excluding taxes) over the next 10 years, to about $215,900 for a buy-and-hold portfolio; but to $310,600 for the covered calls portfolio. Whereas individually, each of the six "edges" described above provides only a small advantage, together they can provide a very significant advantage for covered calls investors.
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"We believe that while investors need to focus great attention on the fundamentals, they must simultaneously answer the question: What's your edge? To succeed in today's overcrowded environment, investors need an edge, an advantage over the competition, to help them allocate their scarce time. Since most everyone has access to complete and accurate databases, powerful computers, and well-trained analytical talent, these resource provide less and less of a competitive edge; they are necessary but not sufficient. You cannot have an edge doing what everyone else is doing; to add value you must stand apart from the crowd. And when you do, you benefit from watching the competition at work." -- Seth Klarman

If you have any comments or questions on this article or on any of the six "edges" presented, please email me at the address shown in the top-right sidebar of this blog. Your comments are always welcomed.

Regards and Godspeed,
Jeff

Establish Guess? Inc. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Guess? Inc.(GES) covered calls. GES was one of the covered calls positions that was called away last Friday at Sep2010 options expiration and today it was decided to re-establish a new position for Oct2010 expiration as follows:

Established Guess? Inc.(GES) Covered Calls for Oct2010:
09/22/2010 Bought 300 GES @ $37.75
09/22/2010 Sold 3 GES Oct2010 $40.00 Calls @ $.55

Guess?, Inc. designs, markets, distributes and licenses its lifestyle collections of contemporary apparel and accessories for a style-conscious 18-to-32-year-old target audience of men and women around the world. In addition to wholesale and retail distribution channels, GES operates in 67 countries via its licensing and distributor partnerships. Apparel and accessories design teams are located in California in the U.S., and in Florence and Bologna, Italy. It offers collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets, and knitwear. The company also grants licenses to manufacture and distribute a range of products that include eyewear, watches, handbags, footwear, kids' and infants' apparel, leather apparel, swimwear, fragrance, jewelry, intimate apparel, and other fashion accessories. Guess , Inc. markets its apparel under various trademarks, including GUESS, GUESS , GUESS U.S.A., GUESS Jeans, GUESS and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO, and Gc. The company sells its products through retail, wholesale, e-commerce, and licensing distribution channels. Guess operates 425 stores in North America and 96 stores abroad; licensees and distributors operated another 594 non-North American stores.

The Buy Alerts spreadsheet below shows that GES is an attractive value at this time since the total points rating of 16.40 is above the Covered Calls Advisor's desired "Buy" threshold of 16.0. Also very importantly, at its current price, the growth potential of the Guess brand seems under-appreciated by investors based on its potential growth drivers related to: (1) rapid expansion in Asia; (2) expanding new product categories; and (3) potential new store formats.




















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

Some possible overall performance results(including commissions) for the Guess? Inc.(GES) transactions would be as follows:
Stock Purchase Cost: $11,333.95
= ($37.75*300+$8.95 commission)

Net Profit:
(a) Options Income: +$153.80
= (300*$.55 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $37.75):
-$8.95 = ($37.75-$37.75)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $40.00): +$666.05
= ($40.00-$37.75)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $37.75): +$144.85
= (+$153.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $40.00): +$819.85
= (+$153.80 +$0.00 +$666.05)

Absolute Return if Unchanged at $37.75: +1.3%
= +$144.85/$11,333.95
Annualized Return If Unchanged (ARIU) +19.4%
= (+$144.85/$11,333.95)*(365/24 days)

Absolute Return if Exercised at $40.00: +7.2%
= +$819.85/$11,333.95
Annualized Return If Exercised (ARIE) +110.0%
= (+$819.85/$11,333.95)*(365/24 days)

Continuation Transactions -- Bank of America Corp., Intel Corp., and Microsoft Corp.

Today, shares in Bank of America Corp.(BAC), Intel Corp.(INTC), and Microsoft Corp.(MSFT) were retained and call options were sold to establish Oct2010 covered calls positions. Normally, the Covered Calls Advisor establishes near-month (in this case that would be Sep2010) covered calls. But the Sep2010 slightly-out-of-the-money strike price call option premiums were less than the minimum desired value of $.30, so the positions were extended to Oct2010 expirations. The transactions history as well as some possible results for these positions are detailed below:

1. 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of BAC was $12.86 on expiration Friday.
09/01/2010 Ex-Dividend $4.00 = $.01*400 shares
09/03/2010 Sold 4 BAC Oct2010 $14.00 Call Options @ $.38
Note: The price of BAC was $13.41 today when these options were 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: +$548.15
= (400*($.58+$.50+$.38) - 3*$11.95 commissions)
(b) Dividend Income: +$4.00 ($.01*400 shares)
(c) Capital Appreciation (If stock price unchanged at $13.41): -$1,043.05
= ($16.04-$13.41)*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 $13.41): -$490.90
= (+$548.15 +$4.00 -$1,043.05)
Total Net Profit(If stock assigned at $14.00): -$272.80
= (+$548.15 +$4.00 -$824.95)

Absolute Return (If Stock unchanged at $13.41): -7.6%
= -$490.90/$6,424.95
Annualized Return If Unchanged (ARIU) -23.8%
= (-$490.90/$6,424.95)*(365/117 days)

Absolute Return if Assigned at $14.00: -4.2%
= -$272.80/$6,424.95
Annualized Return If Exercised (ARIE) -13.2%
= (-$416.85/$6,424.95)*(365/117 days)


2. 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.
08/04/2010 Ex-Dividend $4.00 = $.1575*300 shares
08/21/2010 Aug2010 Option Expired
Note: The closing price of INTC was $18.91 on expiration Friday.
09/03/2010 Sold 3 INTC Oct2010 $19.00 Call Options @ $.43
Note: The price of INTC was $18.24 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: +$504.20
= 300*($.52+$.46+$.42+$.43) - 4*$11.20 commissions
(b) Dividend Income: +$47.25 ($.1575 * 300 shares)
(c) Capital Appreciation (If stock price unchanged at $18.24):
-$626.95 = ($18.24-$20.30)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $19.00): -$398.95
= ($19.00-$20.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $18.24): -$75.50
= (+$504.20 +$47.25 -$626.95)
Total Net Profit(If stock price exercised at $19.00): +$152.50
= (+$504.20 +$47.25 -$398.95)

Absolute Return (If Stock Unchanged at $18.24): -1.2%
= -$75.50/$6,098.95
Annualized Return If Unchanged (ARIU): -3.1%
= (+$844.70/$6,098.95)*(365/148 days)

Absolute Return if Exercised at $19.00: +2.5%
= +$152.50/$6,098.95
Annualized Return If Exercised (ARIE): +6.2%
= (+$152.50/$6,098.95)*(365/148 days)


3. Microsoft Corporation (MSFT) -- Continuation Transaction

The transactions history to date for Microsoft Corporation (MSFT) is as follows:
07/23/2010 Bought 500 MSFT @ $25.47
07/23/2010 Sold 5 MSFT Aug2010 $26.00 Calls @ $.44
08/17/2010 Ex-Dividend $65.00 = $.13 * 500 shares
08/21/2010 Aug2010 Option Expired
Note: The closing price of MSFT was $24.23 on expiration Friday.
09/03/2010 Sold 5 MSFT Oct2010 $25.00 Call Options @ $.49
Note: The price of MSFT was $24.31 today when these options were sold.

Two 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: +$439.60
= (500*($.44+$.49) - 2*$12.70 commissions)
(b) Dividend Income: +$65.00 =($.13 * 500 shares)
(c) Capital Appreciation (If stock price unchanged at $24.31):
-$588.95 = ($24.31-$25.47)*500 - $8.95 commissions
(c) Capital Appreciation (If exercised at $25.00): -$243.95
= ($25.00-$25.47)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $24.31): -$84.35
= (+$439.60 +$65.00 -$588.95)
Total Net Profit(If stock price exercised at $25.00): +$260.65
= (+$439.60 +$65.00 -$243.95)

Absolute Return if Unchanged at $24.31: -0.7%
= -$84.35/$12,743.95
Annualized Return If Unchanged (ARIU) -2.8%
= (-$84.35/$12,743.95)*(365/85 days)

Absolute Return if Exercised at $25.00: +2.0%
= +$260.65/$12,743.95
Annualized Return If Exercised (ARIE) +8.8%
= (+$260.65/$12,743.95)*(365/85 days)

Continuation Transactions -- Best Buy Co. Inc., iShares MSCI China ETF, Neutral Tandem Inc., and ProShares UltraShort 20+ Year Treasury ETF

Today, shares in Best Buy Co. Inc.(BBY), iShares MSCI China ETF (FXI), Neutral Tandem Inc.(TNDM), and ProShares UltraShort 20+ Year Treasury ETF (TBT) were retained and call options were sold to establish Sept2010 covered calls positions in them. The transactions history as well as some possible results for each position are detailed below:

1. 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of BBY was $32.50 on expiration Friday.
09/02/2010 Sold 4 BBY Sep2010 $34.00 Call Options @ $.64
Note: The price of BBY was $33.07 today when these options were 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: +$972.15
= 400*($.82+$1.06+$.64) - 3*$11.95
(c) Capital Appreciation (If BBY unchanged at $33.07): -$1,212.95
= ($33.07-$36.08)*400 - $8.95 commissions
(c) Capital Appreciation (If BBY assigned at $34.00): -$840.95
= ($34.00-$36.08)*400 - $8.95 commissions

Total Net Profit(If BBY price unchanged at $33.07): -$240.80
= (+$972.15 +$0.00 -$1,212.95)
Total Net Profit(If BBY assigned at $34.00): +$131.20
= (+$972.15 +$0.00 -$840.95)

Absolute Return (If BBY unchanged at $33.07): -1.7%
= -$240.80/$14,440.95
Annualized Return If Unchanged (ARIU): -6.8%
= (-$240.80/$14,440.95)*(365/89 days)

Absolute Return if Exercised at $35.00: +0.9%
= +$131.20/$14,440.95
Annualized Return If Exercised (ARIE): +3.7%
= (+$131.20/$14,440.95)*(365/89 days)


2. 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of FXI was $40.54 on expiration Friday.
09/02/2010 Sold 4 FXI Sep2010 $42.00 Call Options @ $.20
Note: The price of FXI was $40.52 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: +$966.60
= (1,100*($.71+$.20) + 700*$.73 + 4008$.40 - ($17.20*2 +$14.20 +$11.95) commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI unchanged at $40.52): $-1,471.95
= ($40.52-$41.85)*1,100 - $8.95 commissions
(c) Capital Appreciation (If all FXI shares are assigned with price above $42.00): +$156.05 = ($42.00-$41.85)*1,100 - $8.95 commissions

Total Net Profit(If FXI price unchanged at $40.52): -$505.35
= (+$966.60 +$0.00 -$1,471.95)
Total Net Profit(If FXI assigned at $42.00): +$1,122.65
= (+$966.60 +$0.00 +$156.05)

Absolute Return (If FXI unchanged at $40.52): -1.1%
= -$505.35/$46,043.95
Annualized Return If Unchanged (ARIU): -4.4%
= (-$505.35/$46,043.95)*(365/91 days)

Absolute Return if Exercised at $42.00: +2.4%
= +$1,122.65/$46,043.95
Annualized Return If Exercised (ARIE): +9.8%
= (+$1,122.65/$46,043.95)*(365/91 days)


3. Neutral Tandem Inc.(TNDM) -- Continuation Transaction

The transactions history to date for the Neutral Tandem Inc.(TNDM) covered calls is as follows:
07/19/2010 Bought 500 TNDM @ $11.78
07/19/2010 Sold 5 TNDM Aug2010 $12.50 Calls @ $.35
08/21/2010 Aug2010 Option Expired
Note: The closing price of TNDM was $12.09 on expiration Friday.
09/02/2010 Sold 5 TNDM Sep2010 $12.50 Call Options @ $.15
Note: The price of TNDM was $11.61 today when these options were sold.

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: +$224.60
= (500*($.35+$.15) - 2*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $11.61):
-$93.95 = ($11.61-$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 $11.61): +$130.65
= (+$224.60 +$0.00 -$93.95)
Total Net Profit(If stock price exercised at $12.50): +$575.65
= (+$224.60 +$0.00 +$351.05)

Absolute Return if Unchanged at $11.61: +2.2%
= +$130.65/$5,898.95
Annualized Return If Unchanged (ARIU) +13.0%
= (+$130.65/$5,898.95)*(365/63 days)

Absolute Return if Exercised at $12.50: +9.8%
= +$575.65/$5,898.95
Annualized Return If Exercised (ARIE) +56.5%
= (+$575.65/$5,898.95)*(365/63 days)


4. ProShares UltraShort 20+ Year Treasury ETF -- Continuation Transaction

The transactions history to date for the ProShares UltraShort 20+ Year Treasury ETF (TBT) covered calls is as follows:
07/19/2010 Bought 300 TBT @ $35.92
07/19/2010 Sold 3 TBT Aug2010 $38.00 Calls @ $.35
08/21/2010 Aug2010 Option Expired
Note: The closing price of TBT was $31.69 on expiration Friday.
09/02/2010 Sold 3 TBT Sep2010 $33.00 Call Options @ $.55
Note: The price of TBT was $32.04 today when these options were sold.

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: +$247.60
= 300*($.35+$.55) - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $32.04):
-$1,172.95 = ($32.04-$35.92)*300 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $33.00): -$884.95
= ($33.00-$35.92)*300 - $8.95 commissions

Total Net Profit(If TBT unchanged at $32.04): -$925.35
= (+$247.60 +$0.00 -$1,172.95)
Total Net Profit(If TBT exercised at $33.00): -$637.35
= (+$247.60 +$0.00 -$884.95)

Absolute Return if Unchanged at $32.04: -8.6%
= -$925.35/$10,784.95
Annualized Return If Unchanged (ARIU) -51.3%
= (-$925.35/$10,784.95)*(365/61 days)

Absolute Return if Exercised at $33.00: -5.9%
= -$637.35/$10,784.95
Annualized Return If Exercised (ARIE) -35.4%
= (-$637.35/$10,784.95)*(365/61 days)

Continuation Transaction -- Symantec Corporation

Today, shares in Symantec Corporation (SYMC) were retained and call options were sold to establish Oct2010 covered calls positions. Normally, the Covered Calls Advisor establishes near-month (in this case that would be Sep2010) covered calls. But the Sep2010 slightly-out-of-the-money $15.00 strike price call option premium was less than the minimum desired value of $.30, so the position was extended to Oct2010 expiration with a $.44 options premium received. The transactions history as well as some possible results for this SYMC position is detailed below:

1. 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of SYMC was $13.80 on expiration Friday.
09/01/2010 Sold 3 SYMC Oct2010 $15.00 Call Options @ $.44
Note: The price of SYMC was $14.07 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: +$353.40
= 300*($.31+$.54+$.44) - 3*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $14.07):
-$197.95 = ($14.07-$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 $14.07): +$155.45
= (+$353.40 +$0.00 -$197.95)
Total Net Profit(If stock price exercised at $15.00): +$434.45
= (+$353.40 +$0.00 +$81.05)

Absolute Return if Unchanged at $14.07: +3.5%
= +$155.45/$4,418.95
Annualized Return If Unchanged (ARIU) +11.2%
= (+$155.45/$4,418.95)*(365/115 days)

Absolute Return if Exercised at $15.00: +9.8%
= +$434.45/$4,418.95
Annualized Return If Exercised (ARIE) +31.2%
= (+$434.45/$4,418.95)*(365/115 days)

Continuation Transactions -- Apple Inc., Cubist Pharmaceuticals, and Petrobras

Today, shares in Apple Inc.(AAPL), Cubist Pharmaceuticals (CBST), and Petrobras(PBR) were retained and call options were sold to establish Sept2010 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 Option 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 Option 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.
08/21/2010 Aug2010 Option Expired
Note: The closing price of AAPL was $249.64 on expiration Friday.
09/01/2010 Sold 1 AAPL Sept2010 $270.00 Call Option @ $.68
Note: The price of AAPL was $251.35 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: -$937.90
= (100*($1.57-$12.20+$3.40-$19.00+$9.40+$9.50-$13.90+$7.50+$4.35+$.68) - 7*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $251.35): +$5,258.35
= ($251.35-$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 $251.35): +$4,320.45
= (-$937.90 +$0.00 +$5,258.35)
Total Net Profit(If stock price exercised at $270.00): +$6,185.45
= (-$937.90 +$0.00 +$7,123.35)

Absolute Return (If Stock unchanged at $251.35): +21.7%
= +$4,320.45/$19,876.65
Annualized Return If Exercised (ARIE) +38.5%
= (+$4,320.45/$19,876.65)*(365/206 days)

Absolute Return (If Stock exercised at $270.00): +31.1%
= +$6,185.45/$19,876.65
Annualized Return If Exercised (ARIE) +55.1%
= (+$6,185.45/$19,876.65)*(365/206 days)


2. 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.
08/21/2010 Aug2010 Options Expired
Note: The closing price of CBST was $22.22 on expiration Friday.
09/01/2010 Sold 3 CBST Sept2010 $22.50 Call Options @ $.60
Note: The price of CBST was $22.48 today when these call options were 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: +$476.40
= (300*($.50+$.60+$.60) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $22.48):
+$342.05 = ($22.48-$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 $22.48): +$818.45
= (+$476.40 +$0.00 +$342.05)
Total Net Profit(If stock price exercised at $22.50): +$824.45
= (+$476.40 +$0.00 +$348.05)

Absolute Return if Unchanged at $22.48: +12.8%
= +$818.45/$6,401.95
Annualized Return If Unchanged (ARIU) +54.9%
= (+$818.45/$6,401.95)*(365/85 days)

Absolute Return if Exercised at $22.50: +12.9%
= +$824.45/$6,401.95
Annualized Return If Exercised (ARIE) +55.3%
= (+$824.45/$6,401.95)*(365/85 days)


3. 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.
08/21/2010 Aug2010 Options Expired
Note: The closing price of PBR was $34.42 on expiration Friday.
09/01/2010 Sold 3 PBR Sept2010 $36.00 Call Options @ $.58
Note: The price of PBR was $35.20 today when these call 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: +$620.40
= (300*($1.05+$.55+$.58) - 3*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PBR unchanged at $35.20): $-1,250.95
= ($35.20-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $36.00): -$1,010.95
= ($36.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR price unchanged at $35.20): -$630.55
= (+$620.40 +$0.00 -$1,250.95)
Total Net Profit(If PBR assigned at $36.00): -$390.55
= (+$620.40 +$0.00 -$1,010.95)

Absolute Return (If PBR unchanged at $35.20): -5.3%
= -$630.55/$11,810.95
Annualized Return If Unchanged (ARIU): -21.9%
= (-$630.55/$11,810.95)*(365/89 days)

Absolute Return if Exercised at $36.00: -3.3%
= -$390.55/$11,810.95
Annualized Return If Exercised (ARIE): -13.6%
= (-$390.55/$11,810.95)*(365/89 days)