Establish iShares MSCI Brazil Index ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI Brazil Index ETF(EWZ) covered calls as follows:

Established iShares MSCI Brazil Index ETF(EWZ) Covered Calls for Feb2011:
01/28/2011 Bought 200 EWZ @ $72.119
01/28/2011 Sold 2 EWZ Feb2011 $73.00 Calls @ $1.45

Some possible overall performance results(including commissions) for the EWZ transactions would be as follows:
Stock Purchase Cost: $14,432.75
= ($72.119*200+$8.95 commission)

Net Profit:
(a) Options Income: +$279.55
= (200*$1.45 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWZ price unchanged at $72.119):
-$8.95 = ($72.119-$72.119)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $73.00): +$167.25
= ($73.00-$72.119)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $72.119): +$270.60
= (+$279.55 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $73.00): +$446.80
= (+$279.55 +$0.00 +$167.25)

Absolute Return if Unchanged at $74.48: +1.9%
= +$270.60/$14,432.75
Annualized Return If Unchanged (ARIU): +31.1%
= (+$270.60/$14,432.75)*(365/22 days)

Absolute Return if Assigned at $73.00: +3.1%
= +$446.80/$14,432.75
Annualized Return If Assigned (ARIA): +51.4%
= (+$446.80/$14,432.75)*(365/22 days)

The downside breakeven price at expiration is at $70.669 ($72.119 - $1.45).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2011 options expiration) for this iShares MSCI Brazil Index covered calls position is 62.0%. This compares with a probability of profit of 50.3% for a buy-and-hold of iShares MSCI Brazil Index ETF(EWZ) over the same time period.

Sold Freeport-McMoRan Copper and Gold Inc. 100% Cash-Secured Put Options

Today, two Freeport-McMoRan (FCX) 100% cash-secured put options were sold in the Covered Calls Advisor Portfolio. The transaction was as follows:

01/28/2011 Sold 2 Freeport-McMoRan Copper and Gold Inc.(FCX) Feb2011 $110.00 Puts @ $6.35
Note: the price of FCX stock was $106.10 when these puts were sold.

Establishing these in-the-money puts reflects this advisor's bullish sentiment for FCX. The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the two put options sold.

This is the first 100% cash-secured put position established in the Covered Calls Advisor Portfolio. As you might recall from this article (link), this advisor has a personal preference that favors covered calls over cash-secured puts, despite the synthetic equivalence of these two strategies if they are established at the same moment in time, at the same strike price, and for the same expiration date. In this instance, the cash-secured put was selected primarily as an experiment to see if any additional insights are gleaned when comparing the covered calls versus cash-secured puts investing processes.

Freeport-McMoRan Copper & Gold is the world's second largest copper producer and is a major producer of gold and molybdenum. FCX has producing mines located in Indonesia, North America, South America and Africa. Copper production totaled 3.9 billion pounds in 2010, versus 4.1 billion pounds in 2009; and gold production totaled 1.9 million oz., versus 2.7 million oz. in 2009. Molybdenum production was 72 million pounds in 2010, versus 54 million pounds in 2009. In 2010, North America accounted for 28% of copper output, versus 28% in 2009; South America 34% versus 34%; Indonesia 31% versus 34%; and Africa 7% versus 4%. At year-end 2010 (on a preliminary basis), consolidated proven and probable reserves totaled 120.5 billion pounds of copper, 35.5 million ounces of gold, and 3.39 billion pounds of molybdenum. Some 27% of FCX's copper reserves were in Indonesia, 31% in South America, 35% in North America, and 7% in Africa. About 95% of FCX's gold reserves were in Indonesia, with the balance in South America. Some 81% of molybdenum reserves were in North America, with the remainder in South America. Freeport-McMoRan Copper & Gold Inc. was founded in 1987 and is headquartered in Phoenix, Arizona.

Freeport-McMoRan ranks very highly on the Covered Calls Advisor's "Buy Alerts" scorecard shown below. The total points of 20.68 is well above the required total points threshold of 16.0 for a new investment.





















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


Two possible overall performance results(including commissions) for the Freeport-McMoRan Copper and Gold Inc.(FCX) transaction would be as follows:
100% Cash-Secured Cost Basis: $22,000.00
= $110.00*200

Net Profit:
(a) Options Income: +$1,259.55
= ($6.35*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $106.10 and thus stock assigned at $110.00 at expiration): -$788.95
= ($106.10-$110.00)*200 - $8.95 commissions
(c) Capital Appreciation (If FCX stock above $110.00 at Feb2011 expiration): -$8.95 = ($106.10-$106.10) -$8.95 commissions
= ($29.00-$28.15)*700 - $8.95 commissions

Total Net Profit(If stock price unchanged at $106.10): +$470.60
= (+$1,259.55 +$0.00 -$788.95)
Total Net Profit(If stock price above $29.00 at Feb2011 options expiration): +$1,250.60
= (+$1,259.55 +$0.00 -$8.95)

Absolute Return if Unchanged at $106.10: +2.1%
= +$470.60/$22,000.00
Annualized Return If Unchanged (ARIU): +35.5%
= (+$470.60/$22,000.00)*(365/22 days)

Absolute Return (If stock price above $29.00 at Feb2011 options expiration and put options thus expire worthless): +5.7%
= +$1,250.60/$22,000.00
Annualized Return (If stock price above $29.00 at expiration): +94.3%
= (+$1,250.60/$22,000.00)*(365/22 days)

The downside breakeven price at expiration is at $103.65 ($110.00 - $6.35). The corresponding probability of profit (if held until Feb2011 options expiration) for these FCX 100% cash-secured puts is 61.3% versus 51.2% for a buy-and-hold of Freeport-McMoRan stock over the same timeframe.

As always, your comments or questions/clarifications regarding this post are welcomed. Please click on the "comments" link below. If you prefer to remain anonymous, email me at the address shown in the upper-right sidebar.

Jeff

Establish Best Buy, Microsoft Corp., and Oshkosh Corp. Covered Calls

Three new covered calls positions were established today in the Covered Calls Advisor Portfolio(CCAP) with a portion of the cash received when six Jan2011 covered calls positions were assigned at expiration last Friday. Two of these purchases (Best Buy and Microsoft) are repeats of successful covered calls holdings that were called away at Jan2011 expiration. The detailed information for each position and some potential results from each postion are as follows:

1. Best Buy Corp.(BBY)
Established Best Buy Corp.(BBY) Covered Calls for Feb2011 as follows:
01/24/2011 Bought 300 BBY @ $35.13
01/24/2011 Sell-to-Open(STO) 3 BBY Feb2011 $36.00 Calls @ $.57

Two possible overall performance results(including commissions) for the Best Buy Corp.(BBY) transactions would be as follows:
Stock Purchase Cost: $10,547.95
= ($35.13*300+$8.95 commission)

Net Profit:
(a) Options Income: +$159.80
= (300*$.57 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $35.13):
-$8.95 = ($35.13-$35.13)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $36.00): +$252.05
= ($36.00-$35.13)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $35.13): +$150.85
= (+$159.80 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $36.00): +$411.85
= (+$159.80 +$0.00 +$252.05)

Absolute Return if Unchanged at $35.13: +1.4%
= +$150.85/$10,547.95
Annualized Return If Unchanged (ARIU): +20.1%
= (+$150.85/$10,547.95)*(365/26 days)

Absolute Return if Assigned at $36.00: +3.9%
= +$411.85/$10,547.95
Annualized Return If Assigned (ARIA): +54.8%
= (+$411.85/$10,547.95)*(365/26 days)

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2011 options expiration) for this Best Buy covered calls position is 60.1%. This compares with a probability of profit of 50.6% for a buy-and-hold of Best Buy stock over the same timeframe.


2. Microsoft Corp.(MSFT)
Established Microsoft Corp.(MSFT) Covered Calls for Feb2011 as follows:
01/24/2011 Bought 700 MSFT @ $28.15
01/24/2011 Sell-to-Open(STO) 7 MSFT Feb2011 $29.00 CallS @ $.40

Two possible overall performance results(including commissions) for the Microsoft Corp.(MSFT) transactions would be as follows:
Stock Purchase Cost: $19,713.95
= ($28.15*700+$8.95 commission)

Net Profit:
(a) Options Income: +$265.80
= 700*$.40 - $14.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $28.15):
-$8.95 = ($28.15-$28.15)*700 - $8.95 commissions
(c) Capital Appreciation (If assigned at $29.00): +$586.05
= ($29.00-$28.15)*700 - $8.95 commissions

Total Net Profit(If stock price unchanged at $28.15): +$256.85
= (+$265.80 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $29.00): +$851.85
= (+$265.80 +$0.00 +$586.05)

Absolute Return if Unchanged at $28.15: +1.3%
= +$256.85/$19,713.95
Annualized Return If Unchanged (ARIU): +18.3%
= (+$256.85/$19,713.95)*(365/26 days)

Absolute Return if Assigned at $29.00: +4.3%
= +$851.85/$19,713.95
Annualized Return If Assigned (ARIA): +60.7%
= (+$851.85/$19,713.95)*(365/26 days)

The probability of profit (if held until Feb2011 options expiration) for this Microsoft covered calls position is 60.1% versus 50.6% for a buy-and-hold of Microsoft stock over the same timeframe.


3. Oshkosh Corp.(OSK)
Established Oshkosh Corp.(OSK) Covered Calls for Feb2011 as follows:
01/24/2011 Bought 300 OSK @ $36.18
01/24/2011 Sell-to-Open(STO) 3 OSK Feb2011 $37.00 CallS @ $1.20

Two possible overall performance results(including commissions) for the Oshkosh Corp.(OSK) transactions would be as follows:
Stock Purchase Cost: $10,862.95
= ($36.18*300+$8.95 commission)

Net Profit:
(a) Options Income: +$348.80
= 300*$1.20 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $36.18):
-$8.95 = ($36.18-$36.18)*300 - $8.95 commissions
(c) Capital Appreciation (If assigned at $37.00): +$237.05
= ($37.00-$36.18)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $36.18): +$339.85
= (+$348.80 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $37.00): +$585.85
= (+$348.80 +$0.00 +$237.05)

Absolute Return if Unchanged at $36.18: +1.7%
= +$339.85/$10,862.95
Annualized Return If Unchanged (ARIU): +24.2%
= (+$339.85/$10,862.95)*(365/26 days)

Absolute Return if Assigned at $37.00: +5.4%
= +$585.85/$10,862.95
Annualized Return If Assigned (ARIA): +75.7%
= (+$585.85/$10,862.95)*(365/26 days)

The probability of profit (if held until Feb2011 options expiration) for this Oshkosh covered calls position is 64.6% versus 52.1% for a buy-and-hold of Oshkosh stock over the same timeframe.

Apple Inc, iShares MSCI Emerging Markets ETF, and iShares MSCI China ETF -- Continuation Transactions

This past Friday was expiration Friday for January 2011 options. In the Covered Calls Advisor's Jan2011 options expiration blog post, it was noted that of the ten covered calls positions with Jan2011 expirations, four positions ended out-of-the-money. Today, a decision was made to retain three of these four positions [Apple Inc.(AAPL), iShares MSCI Emerging Markets ETF (EEM), and iShares MSCI China ETF(FXI)] and to establish Feb2011 covered calls positions. The one position that was not retained was Intel Corp, and the selling of this Intel position was described in the previous post on this blog. The detailed transactions history for each position as well as some possible results for each of these investments are as follows:

1. Apple Inc.(AAPL) -- Continuation
The transactions history is as follows:
12/20/2010 Bought 100 AAPL @ $321.10
12/21/2010 Sold 1 AAPL Jan2011 $330.00 Call @ $6.10
Note: The call option was sold today when the AAPL stock was trading at $324.10.
01/22/2011 Jan2011 AAPL options expired
Note: The price of AAPL was $326.72 at closing on expiration Friday.
01/24/2011 Sold 1 AAPL Feb2011 $340.00 Call @ $5.50
Note: The price of AAPL was $333.72 when this Call option was sold.

The overall performance result(including commissions) for the Apple Inc.(AAPL) transactions was as follows:
Stock Purchase Cost: $32,118.95
= ($321.10*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,140.60
= [100*($6.10+$5.50) - 2*$9.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $333.72):
+$1,253.05 = ($333.72-$321.10)*100 - $8.95 commissions
(c) Capital Appreciation (If assigned at $340.00): +$1,881.05
= ($340.00-$321.10)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $333.72): +$2,393.65
= (+$1,140.60 +$0.00 +$1,253.05)
Total Net Profit(If stock assigned at $340.00): +$3,021.65
= (+$1,140.60 +$0.00 +$1,881.05)

Absolute Return if Unchanged at $333.72: +7.5%
= +$2,393.65/$32,118.95
Annualized Return If Unchanged (ARIU) +44.6%
= (+$2,393.65/$32,118.95)*(365/61 days)

Absolute Return if Assigned at $340.00: +9.4%
= +$3,021.65/$32,118.95
Annualized Return If Assigned (ARIA): +56.3%
= (+$3,021.65/$32,118.95)*(365/61 days)


2. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
10/27/2010 Bought 300 EEM @ $45.55
10/27/2010 Sold 3 EEM Nov2010 $46.00 Calls @ $.99
11/19/2010 Buy-to-Close (BTC) 3 EEM Nov2010 $46.00 Call Options @ $.38
11/19/2010 Sell-to-Open (STO) 3 EEM Dec2010 $47.00 Call Options @ $1.02
12/18/2010 Dec2010 Options Expired
Note: The price of EEM was $46.40 upon Dec2010 options expiration.
12/21/2010 Sold 3 EEM Jan2011 $47.00 Calls @ $.77
Note: The price of EEM was $46.43 when these options were sold.
12/21/2010 Distribution Income $107.83 = $.35942 * 300 shares
12/29/2010 Distribution Income $7.54 = $.02512 * 300 shares
01/22/2011 Jan2011 EEM options expired
Note: The price of EEM was $46.49 at closing on expiration Friday.
01/24/2011 Sold 3 EEM Feb2011 $47.00 Calls @ $.92
Note: The price of EEM was $46.65 when these options were sold.

Two possible overall performance results(including commissions) for the EEM transactions would be as follows:
Stock Purchase Cost: $13,673.95
= ($45.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$951.20
= (300*($.99-$.38+$1.02+$.77+$.92) - 4*$11.20 commissions)
(b) Distribution Income: +$115.37 = $107.83 + $7.54
(c) Capital Appreciation (If EEM price unchanged at $46.65):
+$321.05 = ($46.65-$45.55)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$426.05
= ($47.00-$45.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.65): +$1,387.62
= (+$951.20 +$115.37 +$321.05)
Total Net Profit(If stock assigned at $47.00): +$1,492.62
= (+$951.20 +$115.37 +$426.05)

Absolute Return if Unchanged at $46.65: +10.1%
= +$1,387.62/$13,673.95
Annualized Return If Unchanged (ARIU): +32.2%
= (+$1,387.62/$13,673.95)*(365/115 days)

Absolute Return if Assigned at $47.00: +10.9%
= +$1,492.62/$13,673.95
Annualized Return If Assigned (ARIA): +34.6%
= (+$1,227.81/$13,673.95)*(365/115 days)


3. 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.
10/14/2010 Buy-to-Close (BTC) 11 FXI Oct2010 $43.00 Call Options @ $2.69
10/14/2010 Sell-to-Open (STO) 11 FXI Nov2010 $47.00 Call Options @ $.85
11/20/2010 Nov2010 Options Expired
Note: The closing price of FXI was $44.66 on expiration Friday.
12/01/2010 Sell-to-Open (STO) 11 FXI Jan2011 $47.00 Call Options @ $.63
Note: The price of FXI was $44.41 today when these options were sold.
12/20/2010 Income Distribution $186.11 = ($.16919 * 1100 shares)
01/22/2011 Jan2011 FXI options expired
Note: The price of FXI was $43.23 at closing on expiration Friday.
01/24/2011 Sold 3 FXI Feb2011 $44.00 Calls @ $.55
Note: The price of FXI was $43.04 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: +$1,515.85
= (1,100*($.71+$.20+$.62-$2.69+$.85+$.63+$.55) + 700*$.73 + 400*$.40 - ($17.20*5 +$14.20 +$11.95) commissions)
(b) Distribution Income: +$186.11 = ($.16919 * 1100 shares)
(c) Capital Appreciation (If FXI unchanged at $43.04): +$1,300.05
= ($43.04-$41.85)*1,100 - $8.95 commissions
(c) Capital Appreciation (If all FXI shares are assigned at $44.00): +$2,356.05
= ($44.00-$41.85)*1,100 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $43.04): +$3,002.01
= (+$1,515.85 +$186.11 +$1,300.05)
Total Net Profit (If FXI assigned at $44.00): +$4,058.01
= (+$1,515.85 +$186.11 +$2,356.05)

Absolute Return (If FXI unchanged at $44.66): +6.5%
= +$3,002.01/$46,043.95
Annualized Return If Unchanged (ARIU): +9.8%
= (+$3,002.01/$46,043.95)*(365/243 days)

Absolute Return (If Assigned at $44.00): +8.8%
= +$4,058.01/$46,043.95
Annualized Return If Assigned (ARIA): +13.2%
= (+$4,058.01/$46,043.95)*(365/243 days)

Intel Corp. -- Closed

Last Friday was expiration Friday for January 2011. A decision was made today to sell the 300 shares owned in Intel Corp.(INTC). The Covered Calls Advisor views both Intel and Microsoft prospects similarly in that their sales are both correlated strongly with PC sales. This advisor has determined that Microsoft's software-focused product offerings have better ongoing growth prospects than the hardware-focused and commoditized nature of Intel. So the Intel position was sold and the preferred Microsoft covered calls position will be continued.

1. Intel Corp.(INTC) -- Closed
The transactions history was as follows:
12/27/2010 Bought 300 INTC @ $20.71
12/27/2010 Sell-to-Open(STO) 3 INTC Jan2011 $21.00 CallS @ $.40
Note: The price of INTC was $20.78 today when these options were sold.
01/22/2011 Jan2011 INTC options expired
Note: The price of INTC was $20.82 at closing on expiration Friday.
01/24/2011 Sold 300 INTC @ $21.05

The overall performance result(including commissions) for the Intel Corp.(INTC) transactions was as follows:
Stock Purchase Cost: $6,242.95
= ($20.78*300+$8.95 commission)

Net Profit:
(a) Options Income: +$111.05
= (300*$.40 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (Stock sold at $21.05): +$93.05
= ($21.05-$20.71)*300 - $8.95 commissions

Total Net Profit(With stock sold at $21.05): +$204.10
= (+$111.05 +$0.00 +$93.05)

Absolute Return: +3.3%
= +$204.10/$6,242.95
Annualized Return: +42.6%
= (+$204.10/$6,242.95)*(365/28 days)

January 2011 Expiration Transactions

The Covered Calls Advisor Portfolio (CCAP) contained a total of twelve covered calls positions with January 2011 expirations, with the following results:

- Decisions were made earlier this week to roll-up-and-out from two existing in-the-money Jan2011 covered calls positions (Petrobras and Research in Motion Ltd.) into Feb2011 positions. Separate posts were made on this blog earlier this week for each of these transactions on the day they occurred.

Of the remaining ten positions that were held until Jan2011 expiration this past Friday:

- Six positions (Bank of America, Domtar Corp, International Paper, iShares MSCI South Korea ETF, Microsoft Corp., and UnitedHealth Group) finished in-the-money. The calls were exercised and the shares were called away.

The annualized return-on-investment results achieved on these six assigned positions were as follows:

1. Bank of America Corp. -- -13.5%

2. Domtar Corp. -- +73.3%

3. International Paper Co. -- +55.1%

4. iShares MSCI South Korea ETF -- +59.1%

5. Microsoft Corp. -- +23.0%

6. UnitedHealth Group -- +25.2%

Detailed results for each of these six covered calls positions that were assigned (called away) upon Jan2011 expiration are described below.

- The remaining four positions in the CCAP (Apple Inc., Intel Corp., iShares MSCI China ETF, and iShares MSCI Emerging Markets ETF) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Feb2011 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.

The overall performance results for the six assigned Jan2011 covered calls positions were as follows:

1. Bank of America Corp.(BAC) -- Closed
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.
10/16/2010 Oct2010 options expired.
Note: The closing price of BAC was $11.98 on expiration Friday.
11/04/2010 Sold 4 BAC Nov2010 $12.00 Call Options @ $.26
Note: The price of BAC was $11.84 today when these options were sold.
11/20/2010 Nov2010 Options Expired
Note: The closing price of BAC was $11.65 on expiration Friday.
12/01/2010 Ex-Dividend $4.00 = $.01*400 shares
12/02/2010 Sell-to-Open (STO) 4 BAC Jan2011 $12.50 Call Options @ $.34
Note: The price of BAC was $11.59 and the implied volatility was about 39 today when these options were sold. The Jan2011 expiration was selected instead on the usual near-month (Dec2010 in this case) expiration since the option premium of $.17 was below the minimum of $.25 per contract required by the Covered Calls Advisor.
01/07/2011 Buy-to-Close (BTC) 4 BAC Jan2011 $12.50 Call Options @ $1.61
01/07/2011 Sell-to-Open (STO) 4 BAC Jan2011 $14.00 Call Options @ $.49
Note: the price of BAC was $14.11 today when the limit order to sell these calls at $.49 was transacted.
01/22/2011 Jan2011 Options Expired.
Note: the price of BAC was $14.25 upon options expiration.

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

Net Profit:
(a) Options Income: +$304.30
= [400*($.58+$.50+$.38+$.26+$.34-$1.61+$.49) - 7*$11.95 commissions]
(b) Dividend Income: +$8.00 = 2x($.01*400 shares)
(c) Capital Appreciation (Stock assigned at $14.00): -$824.95
= ($14.00-$16.04)*400 - $8.95 commissions

Total Net Profit(Stock assigned at $14.00): -$512.65
= (+$304.30 +$8.00 -$824.95)

Absolute Return (Stock Assigned at $14.00): -8.0%
= -$512.65/$6,424.95
Annualized Return: -13.5%
= (-$512.65/$6,424.95)*(365/215 days)


2. Domtar Corp.(UFS) -- Closed
The transactions history is as follows:
11/22/2010 Bought 300 UFS @ $78.20
11/22/2010 Sold 3 UFS Dec2010 $80.00 Calls @ $2.35
12/18/2010 Dec2010 Options Expired
Note: The price of UFS was $76.16 upon Dec2010 options expiration.
12/21/2010 Sold 3 UFS Jan2011 $80.00 Calls @ $1.85
Note: The price of UFS was $77.94 when these options were sold.
01/22/2011 Jan2011 Options Expired.
Note: the price of UFS was $81.50 upon options expiration.

The overall performance result(including commissions) for the Domtar Corp.(UFS) transactions was as follows:
Stock Purchase Cost: $23,468.95
= ($78.20*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,237.60
= (300*($2.35+$1.85) - 2*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (UFS assigned at $80.00): +$531.05
= ($80.00-$78.20)*300 - $8.95 commissions

Total Net Profit(UFS assigned at $80.00): +$1,768.65
= (+$1,237.60 +$0.00 +$531.05)

Absolute Return (Stock Assigned at $80.00): +45.1%
= +$1,768.65/$23,468.95
Annualized Return: +73.3%
= (+$1,768.65/$23,468.95)*(365/61 days)

3. International Paper Co.(IP) -- Closed
The transactions history to date for International Paper Co.(IP) is as follows:
11/09/2010 Bought 300 IP @ $25.82
11/09/2010 Sold 3 IP Nov2010 $25.00 Calls @ $1.05
11/19/2010 Ex-Dividend $38.25 = $.1275*300 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of IP was $24.80 on expiration Friday.
11/24/2010 Sold 3 IP Dec2010 $26.00 Calls @ $.53
Note: The price of IP was $25.40 when the call options were sold.
12/13/2010 Buy-to-Close (BTC) 3 IP Dec2010 $26.00 Call Options @ $.97
12/13/2010 Sell-to-Open (STO) 3 IP Jan2011 $27.00 Call Options @ $1.15
Note: The price of IP was $27.04 when the call options were sold.
01/22/2011 Jan2011 Options Expired.
Note: the price of IP was $27.91 upon options expiration.

A possible overall performance result(including commissions) for the IP transactions would be as follows:
Stock Purchase Cost: $7,754.95
= ($25.82*300+$8.95 commission)

Net Profit:
(a) Options Income: +$483.20
= (300*($1.05+$.53-$.97+$1.15) - 4*$11.20 commissions)
(b) Dividend Income): +$38.25 = ($.1275 * 300 shares) Note: Ex-Div was on 11/19/2010
(c) Capital Appreciation (Stock assigned at $27.00): +$345.05
= ($27.00-$25.82)*300 - $8.95 commissions

Total Net Profit (Stock assigned at $27.00 at Jan2011 expiration): +$866.50
= (+$483.20 +$38.25 +$345.05)

Absolute Return (Stock assigned at $27.00 at Jan2011 expiration): +11.2%
= +$866.50/$7,754.95
Annualized Return: +55.1%
= (+$866.50/$7,754.95)*(365/74 days)


4. iShares MSCI South Korea ETF
The transactions history to date for iShares MSCI South Korea ETF (EWY) is as follows:
11/26/2010 Bought 300 EWY @ $53.67
11/26/2010 Sold 3 EWY Dec2010 $55.00 Calls @ $1.18
12/15/2010 Buy-to-Close (BTC) 3 EWY Dec2010 $55.00 Call Options @ $3.05
12/15/2010 Sell-to-Open (STO) 3 EWY Jan2011 $59.00 Call Options @ $1.43
12/21/2010 Income Distribution $50.73 = $.16910 * 300 shares
01/22/2011 Jan2011 Options Expired.
Note: the price of EWY was $61.11 upon options expiration.

The overall performance result(including commissions) for the EWY transactions was as follows:
Stock Purchase Cost: $16,109.95
= ($53.67*300+$8.95 commission)

Net Profit:
(a) Options Income: -$154.40
= [300*($1.18-$3.05+$1.43) - 2*$11.20 commissions]
(b) Distribution Income: +$50.73 = $.16910 * 300 shares
(c) Capital Appreciation (EWY assigned at $59.00): +$1,590.05
= ($59.00-$53.67)*300 - $8.95 commissions

Total Net Profit(EWY assigned at $59.00): +$1,486.38
= (-$154.40 +$50.73 +$1,590.05)

Absolute Return (EWY Assigned at $59.00): +9.2%
= +$1,486.38/$16,109.95
Annualized Return: +59.1%
= (+$1,486.38/$16,109.95)*(365/57 days)


5. Microsoft Corp.(MSFT) -- Closed
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 Options 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.
10/15/2010 Buy-to-Close (BTC) 5 MSFT Oct2010 $25.00 Call Options @ $.32
10/15/2010 Sell-to-Open (STO) 5 MSFT Nov2010 $26.00 Call Options @ $.47
11/16/2010 Ex-Dividend $80.00 = $.16 * 500 shares
11/20/2010 Nov2010 Options Expired
Note: The closing price of MSFT was $25.69 on expiration Friday.
12/01/2010 Sell-to-Open (STO) 5 MSFT Dec2010 $26.00 Call Options @ $.44
Note: The price of MSFT was $25.95 today when these options were sold.
12/14/2010 Buy-to-Close (BTC) 5 MSFT Dec2010 $26.00 Call Options @ $1.43
12/14/2010 Sell-to-Open (STO) 5 MSFT Jan2011 $27.50 Call Options @ $.70
Note: The price of MSFT was $27.41 today when these options were sold.
01/22/2011 Jan2011 Options Expired.
Note: the price of MSFT was $28.02 upon options expiration.

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: +$318.80
= (500*($.44+$.49-$.32+$.47+$.44-$1.43+$.70) - 6*$12.70 commissions)
(b) Dividend Income: +$145.00 = ($.13 * 500 shares + $.16 * 500 shares)
(c) Capital Appreciation (Stock assigned at $27.50): +$1,006.05
= ($27.50-$25.47)*500 - $8.95 commissions

Total Net Profit(Stock assigned at $27.50): +$1,469.85
= (+$318.80 +$145.00 +$1,006.05)

Absolute Return (Stock Assigned at $27.50): +11.5%
= +$1,469.85/$12,743.95
Annualized Return (Stock Assigned at $27.50): +23.0%
= (+$1,469.85/$12,743.95)*(365/183 days)


6. UnitedHealth Group Inc.(UNH) -- Closed
The transactions history to date for UnitedHealth Group Inc.(UNH) is as follows:
12/22/2010 Bought 300 UNH @ $35.55
12/22/2010 Sell-to-Open(STO) 3 UNH Jan2011 $35.00 CallS @ $1.38
01/22/2011 Jan2011 Options Expired.
Note: the price of UNH was $40.41 upon options expiration.

The overall performance result(including commissions) for the UNH transactions was as follows:
Stock Purchase Cost: $10,673.95
= ($35.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$402.80
= (300*$1.38 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $35.00): -$173.95
= ($35.00-$35.55)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $35.00): +$228.85
= (+$402.80 +$0.00 -$173.95)

Absolute Return (Stock Assigned at $35.00): +2.1%
= +$228.95/$10,673.95
Annualized Return: +25.2%
= (+$228.95/$10,673.95)*(365/31 days)

Roll Up and Out -- Petrobras (PBR) Covered Calls

Today is Jan2011 options expiration Friday. With the three Petrobras (PBR) Jan2011 $35.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Feb2011 expiration at the $37.00 strike price. The three Jan2011 $35.00 calls were bought back for $1.35 (only $.02 of time value remaining in each call option) and replaced by selling three out-of-the-money Feb2011 $37.00 strike options at $.89 as follows:
01/21/2011 Buy-to-Close (BTC) 3 PBR Jan2011 $35.00 Call Options @ $1.35
01/21/2011 Sell-to-Open (STO) 3 PBR Feb2011 $37.00 Call Options @ $.89
The price of PBR was $1.33 today when these transactions were made.

The overall transactions history as well as two possible return-on-investment results are detailed below:

1. 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.
08/02/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
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.
10/16/2010 Oct2010 Options Expired
Note: Price of PBR at expiration was $34.29
10/18/2010 Sell-to-Open (STO) 3 PBR Nov2010 $36.00 Call Options @ $.62
Note: The price of PBR was $34.20 today when these call options were sold.
11/03/2010 +$57.90 Ex-Dividend = ($.193 Net Dividend x 300 shares)
11/20/2010 Nov2010 Options Expired
Note: Price of PBR at expiration was $33.59
12/01/2010 Sell-to-Open (STO) 3 PBR Dec2010 $34.00 Call Options @ $.54
Note: The price of PBR was $33.05 today when these call options were sold.
12/07/2010 $41.42 Dividend = ($.138 Net Dividend x 300 shares)
12/18/2010 Dec2010 Options Expired
Note: The price of PBR was $34.08 upon Dec2010 options expiration.
12/21/2010 Sold 3 PBR Jan2011 $35.00 Calls @ $.59
Note: The price of PBR was $34.18 when these options were sold.
01/06/2011 $61.03 Dividend = ($.203 Net Dividend x 300 shares)
01/21/2011 Buy-to-Close (BTC) 3 PBR Jan2011 $35.00 Call Options @ $1.35
01/21/2011 Sell-to-Open (STO) 3 PBR Feb2011 $37.00 Call Options @ $.89


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: +$1,140.40
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89) - 8*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR unchanged at $36.33): $-911.95
= ($36.33-$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 $36.33): +$415.05
= (+$1,140.40 +$186.60 -$911.95)
Total Net Profit(If PBR assigned at $37.00): +$616.05
= (+$1,140.40 +$186.60 -$710.95)

Absolute Return (If PBR unchanged at $36.33): +3.5%
= +$415.05/$11,810.95
Annualized Return If Unchanged (ARIU): +5.3%
= (+$415.05/$11,810.95)*(365/243 days)

Absolute Return (If Assigned at $37.00): +5.2%
= +$616.05/$11,810.957Annualized Return If Assigned: +7.8%
= (+$616.05/$11,810.95)*(365/243 days)

Overall Market Meter Rating Remains "Neutral"

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 "Neutral":
















The current Market Meter Average of 3.33 is a Neutral rating, and is identical to the 3.33 of last month. Furthermore, all nine of the factors used remained unchanged from last month. Note: The range for Neutral is between 2.5 and 3.5.
As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the nearest expiration month." Thus, new positions for Feb2011 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. These nine factors can be categorized into macroeconomic (the first 3 indicators in the chart above), momentum (next 2 indicators in the chart), value (next 3 indicators), and growth (the last indicator).

The Covered Calls Advisor is currently tracking two additional factors: (1) The Conference Board's Leading Economic Index; and (2) Estimated Future Inflation -- four sub-factors being tracked here are the money multiplier, the velocity of money, capacity utilization, and the 10-Year T-Bond minus 10-Year TIPS 'Breakeven Rate'. A decision on whether or not to add these two factors into the Overall Market Meter rating system will be made within the next several months.

Your comments or questions/clarifications regarding this post are welcomed.
Please click on the "comments" link below. If you prefer to remain anonymous, email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Roll Up and Out -- Research in Motion Ltd.(RIMM) Covered Calls

Today, with the three Research in Motion Ltd.(RIMM) Jan2011 $57.50 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Feb2011 expiration at the $62.50 strike price. The three Jan2011 $57.50 calls were bought back for $7.62 (only $.08 of time value remaining in each call option) and replaced by selling three in-the-money Feb2011 $62.50 strike options at $4.14 as follows:
01/14/2011 Buy-to-Close (BTC) 3 RIMM Jan2011 $57.50 Call Options @ $7.62
01/14/2011 Sell-to-Open (STO) 3 RIMM Feb2011 $62.50 Call Options @ $4.14
The price of RIMM was $65.04 today when this debit-spread transaction was made.

1. Research in Motion (RIMM) -- Continuation Transaction
The transactions history is as follows:
09/23/2010 Bought 300 RIMM @ $46.55
09/23/2010 Sold 3 RIMM Oct2010 $47.50 Calls @ $1.64
10/13/2010 Buy-to-Close (BTC) 3 RIMM Oct2010 $47.50 Call Options @ $2.60
10/13/2010 Sell-to-Open (STO) 3 RIMM Nov2010 $50.00 Call Options @ $2.44
11/16/2010 Buy-to-Close (BTC) 3 RIMM Nov2010 $50.00 Call Options @ $6.15
11/16/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $57.50 Call Options @ $3.05
12/06/2010 Buy-to-Close (BTC) 3 RIMM Dec2010 $57.50 Call Options @ $6.60
12/06/2010 Sell-to-Open (STO) 3 RIMM Dec2010 $62.50 Call Options @ $3.20
12/18/2010 Dec2010 Options Expired
Note: The price of RIMM was $60.20 upon Dec2010 options expiration.
12/21/2010 Sold 3 RIMM Jan2011 $57.50 Calls @ $2.60
Note: The price of RIMM was $58.44 when these options were sold.
01/14/2011 Buy-to-Close (BTC) 3 RIMM Jan2011 $57.50 Call Options @ $7.62
01/14/2011 Sell-to-Open (STO) 3 RIMM Feb2011 $62.50 Call Options @ $4.14
The price of RIMM was $65.04 today when this debit-spread transaction was made.

A possible performance result(including commissions) for these Research In Motion Ltd.(RIMM) transactions would be as follows:

Stock Purchase Cost: $13,973.95
= ($46.55*300+$8.95 commission)

Net Profit:
(a) Options Income: -$1,859.60
= 300*($1.64-$2.60+$2.44-$6.15+$3.05-$6.60+$3.20+$2.60-$7.62+$4.14) - 8*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $62.50): +$4,776.05
= ($62.50-$46.55)*300 - $8.95 commissions

Total Net Profit(If stock assigned at $62.50): +$2,916.45
= (-$1,859.60 +$0.00 +$4,776.05)

Absolute Return if Assigned at $62.50: +20.9%
= +$2,916.45/$13,973.95

Annualized Return If Assigned (ARIA): +51.1%
= (+$2,916.45/$13,973.95)*(365/149 days)

Roll Up -- Bank of America Corp.(BAC) Covered Calls

Today, with the four Bank of America Corp.(BAC) Jan2011 $12.50 calls well in-the-money, the Covered Calls Advisor rolled up to the Jan2011 expiration at the $14.00 strike price. With the price of BAC at $14.05, the four Jan2011 $12.50 calls were bought back for $1.61 [only $.11 ($1.61-{$14.00-$12.50}) of time value remaining in each call option]. They were replaced by selling four Jan2011 $14.00 strike options at $.49 as follows:
01/07/2011 Buy-to-Close (BTC) 4 BAC Jan2011 $12.50 Call Options @ $1.61
01/07/2011 Sell-to-Open (STO) 4 BAC Jan2011 $14.00 Call Options @ $.49
Note: the price of BAC was $14.11 today when the limit order to sell these calls at $.49 was transacted.

The Covered Calls Advisor's criteria for when and how to 'roll up' any existing covered calls position are as follows:
1. Roll up when the current equity price is more than 10% above the current strike price; and
2. Make the roll transactions when the current equity price is very close to the new strike price (within + or - $.25 of the new strike price) -- i.e. very close to at-the-money; and
3. Roll (within the same expiration month) if more than 1 week (7 calendar days) until expiration. Roll out to the next expiration month if 1 week or less from the current expiration.
Each of these three criteria were achieved today since:
1. BAC was more than 10% above the current strike price. Note: with BAC at $14.05 today, it was actually 12.4% above the current $12.50 strike price; and
2. The stock price was very close (i.e. within $.25) of the new strike price of $14.00 when the roll-up transactions were made; and
3. Since today is 15 calendar days until Jan2011 options expiration, this exceeds the 7 calendar days threshold. So the options were rolled to the same (i.e. Jan2011) expiration month.

Bank of America's stock performance has been very disappointing since it was purchased in June 2010, but the Covered Calls Advisor maintains his conviction that over the next several months, BAC will increase above its book value to a price above the $16.04 original purchase price. From a valuation perspective, BAC is cheap since it now trades at about one-half of its historic price/book value ratio. Yesterday, Jim Cramer gave ten reasons why BAC is worth buying:
1. Bank of America's chart is incredible compared to what it was in 2007, when it resembled the north face of Mount Everest. Cramer thinks the chart itself is a "screaming buy" and wonders why it is inspiring so much negativity.
2. The bank is well-capitalized and doesn't need to raise more money.
3. Dividend boosts are on the way.
4. Bank of America managed to snag 20% of the mortgage market during the downturn. While having so many mortgages was a liability not long ago, it will be an asset as the housing sector returns.
5. BAC owns the most houses, and will do well in the housing shortage Cramer is predicting for 2012.
6. Fed Chairman Ben Bernanke is determined to keep the banking sector strong, and BAC will be a prime beneficiary, given its "gigantic deposit base."
7. It owns Merrill Lynch. As stocks are looking more attractive now that President Obama is not raising taxes on dividends, more Americans will increase their investments and seek advice from Merrill Lynch's advisers.
8. While the jobs number on Friday may be weak, Cramer would buy BAC on the weakness, since he thinks the long-term outlook for employment is bullish.
9. Fin Reg is over.
10. Now that BAC has settled its claims with Fannie Mae and Freddie Mac, a major risk factor has been taken off the table.

The Covered Calls Advisor agrees. Moreover, Bank of America stock price catalysts in 2011 should include: an improving U.S. outlook, improving loan growth, continuing declines in credit losses, and a gradually steeper yield curve. Despite losses on the BAC covered calls position to-date, this advisor is sticking with the BAC holding and now intends to continue writing BAC covered calls each month.

The overall transactions history (from its inception in June 2010) to the present, as well as a possible return-on-investment result through the Jan2011 expiration are as follows:

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.
10/16/2010 Oct2010 options expired.
Note: The closing price of BAC was $11.98 on expiration Friday.
11/04/2010 Sold 4 BAC Nov2010 $12.00 Call Options @ $.26
Note: The price of BAC was $11.84 today when these options were sold.
11/20/2010 Nov2010 Options Expired
Note: The closing price of BAC was $11.65 on expiration Friday.
12/01/2010 Ex-Dividend $4.00 = $.01*400 shares
12/02/2010 Sell-to-Open (STO) 4 BAC Jan2011 $12.50 Call Options @ $.34
Note: The price of BAC was $11.59 and the implied volatility was about 39 today when these options were sold. The Jan2011 expiration was selected instead on the usual near-month (Dec2010 in this case) expiration since the option premium of $.17 was below the minimum of $.25 per contract required by the Covered Calls Advisor.
01/07/2011 Buy-to-Close (BTC) 4 BAC Jan2011 $12.50 Call Options @ $1.61
01/07/2011 Sell-to-Open (STO) 4 BAC Jan2011 $14.00 Call Options @ $.49
Note: the price of BAC was $14.11 today when the limit order to sell these calls at $.49 was transacted.

A possible overall performance result(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: +$304.30
= [400*($.58+$.50+$.38+$.26+$.34-$1.61+$.49) - 7*$11.95 commissions]
(b) Dividend Income: +$8.00 = 2x($.01*400 shares)
(c) Capital Appreciation (If stock assigned at $14.00): -$824.95
= ($14.00-$16.04)*400 - $8.95 commissions

Total Net Profit(If stock assigned at $14.00): -$512.65
= (+$304.30 +$8.00 -$824.95)

Absolute Return if Assigned at $14.00: -8.0%
= -$512.65/$6,424.95
Annualized Return If Assigned (ARIA): -13.5%
= (-$512.65/$6,424.95)*(365/215 days)

I would appreciate any comments or questions you have on this post -- please click on the 'comments' link below.

Returns -- Through December 2010

1. December 2010 Year-to-Date Results:

As shown in the table below, the Covered Calls Advisor Portfolio (CCAP) underperformed the Russell 3000 benchmark by 10.47 percentage points (+14.81% -4.34%) in 2010:

















CCAP Absolute Return (Jan 1st through December 31st, 2010) = +4.34%
($287,453.75-$275,491.90)/$275,491.90

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through December 31st, 2010) = +14.81%
($74.95-$65.28)/$65.28

With a return of +4.34% for 2010, the underperformance in comparison with the Russell 3000 benchmark was definitely disappointing. The two primary reasons for this underperformance were (1) the extraordinarily variable monthly returns (both positive and negative) of the overall market -- monthly returns exceeded +3.0% or were less than -3.0% in ten of the twelve months in 2010; and (2) sub-par stock selections. Neither of these factors relates to the overall desirability of covered calls investing itself, so the Covered Calls Advisor remains 100% commited to remaining fully invested in covered calls at all times in the year ahead. As shown in the table below, the Covered Calls Advisor Portfolio has outperformed in 3 of the 4 years of its existence. This Covered Calls Advisor is looking forward to 2011 and for a return to outperforming the Russell 3000 benchmark -- the motto of this blog remains: "Stick With Covered Calls."

2. Prior Years Results:
The Covered Calls Advisor Portfolio (CCAP) began in September, 2007. The annualized returns achieved each year for 2007 through 2010 compared with the Russell 3000 benchmark 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 equities 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.

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.

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

Regards and Godspeed,
Jeff