Returns -- Through February 2011

1. February 2011 Year-to-Date Results:

The Covered Calls Advisor Portfolio (CCAP) has increased by +3.02% for the two months so far in calendar year 2011. This performance compares with an increase of +5.88% for the benchmark Russell 3000 index for the same two-month period.

CCAP Absolute Return (Jan 1st through Feb 28th, 2011) = +3.02%
($296,692.51-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through Feb 28th, 2011) = +5.88%
($79.36-$74.95)/$74.95


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 this advisor's personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

The Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined:
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100.

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

If you have any comments or questions, please feel free to submit them -- they are always welcomed. Click the 'comments' link below. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog site.

Regards and Godspeed,
Jeff

Apple Inc, iShares MSCI Emerging Markets ETF, iShares MSCI China ETF, and Sprint Nextel Corp. -- Continuation Transactions

In the Covered Calls Advisor's Feb2011 options expiration blog post, it was noted that of the eleven covered calls positions with Feb2011 expirations, six positions ended out-of-the-money. Today, a decision was made to retain four of these six positions [Apple Inc.(AAPL), iShares MSCI Emerging Markets ETF (EEM), iShares MSCI China ETF(FXI), and Sprint Nextel Corp.(S)] and to establish Mar2011 and Apr2011 covered calls positions. Decisions to either sell the remaining two stock positions or establish covered call positions with them will be made soon and will be posted on this blog the same day the associated transactions occur. The detailed transactions history for each of these four positions 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.
02/19/2011 Feb2011 AAPL options expired
02/28/2011 Sold 1 AAPL Apr2011 $360.00 Call @ $10.80
Note: The price of AAPL was $354.32 when this Call option was sold.

Two possible overall performance results(including commissions) for the Apple Inc.(AAPL) transactions would be as follows:
Stock Purchase Cost: $32,118.95
= ($321.10*100+$8.95 commission)

Net Profit:
(a) Options Income: +$2,210.90
= [100*($6.10+$5.50+$10.80) - 3*$9.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $354.32):
+$3,313.05 = ($354.32-$321.10)*100 - $8.95 commissions
(c) Capital Appreciation (If assigned at $360.00): +$3,881.05
= ($360.00-$321.10)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at $354.32): +$5,523.95
= (+$2,210.90 +$0.00 +$3,313.05)
Total Net Profit(If stock assigned at $36.00): +$6,091.95
= (+$2,210.90 +$0.00 +$3,881.05)

Absolute Return if Unchanged at $354.32: +17.2%
= +$5,523.95/$32,118.95
Annualized Return If Unchanged (ARIU): +53.7%
= (+$5,523.95/$32,118.95)*(365/117 days)

Absolute Return if Assigned at $360.00: +19.0%
= +$6,091.95/$32,118.95
Annualized Return If Assigned (ARIA): +59.2%
= (+$6,091.95/$32,118.95)*(365/117 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.
02/19/2011 Feb2011 EEM options expired
02/28/2011 Sold 3 EEM Mar2011 $46.00 Calls @ $.79
Note: The price of EEM was $45.86 when these Call 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: +$1,177.00
= (300*($.99-$.38+$1.02+$.77+$.92+$.79) - 5*$11.20 commissions)
(b) Distribution Income: +$115.37 = $107.83 + $7.54
(c) Capital Appreciation (If EEM price unchanged at $45.86):
+$84.05 = ($45.86-$45.55)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $46.00): +$126.05
= ($46.00-$45.55)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.86): +$1,376.42
= (+$1,177.00 +$115.37 +$84.05)
Total Net Profit(If stock assigned at $46.00): +$1,418.42
= (+$1,177.00 +$115.37 +$126.05)

Absolute Return if Unchanged at $45.86: +10.1%
= +$1,376.42/$13,673.95
Annualized Return If Unchanged (ARIU): +21.5%
= (+$1,376.42/$13,673.95)*(365/171 days)

Absolute Return if Assigned at $46.00: +10.4%
= +$1,418.42/$13,673.95
Annualized Return If Assigned (ARIA): +22.1%
= (+$1,418.42/$13,673.95)*(365/171 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.
02/19/2011 Feb2011 FXI options expired
02/28/2011 Sold 11 FXI Apr2011 $44.00 Calls @ $.67
Note: The price of FXI was $42.41 when these Call 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: +$2,235.65
= (1,100*($.71+$.20+$.62-$2.69+$.85+$.63+$.55+$.67) + 700*$.73 + 400*$.40 - ($17.20*6 +$14.20 +$11.95) commissions)
(b) Distribution Income: +$186.11 = ($.16919 * 1100 shares)
(c) Capital Appreciation (If FXI unchanged at $42.41): +$607.05
= ($42.41-$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 $42.41): +$3,028.81
= (+$2,235.65 +$186.11 +$607.05)
Total Net Profit (If FXI assigned at $44.00): +$4,777.81
= (+$2,235.65 +$186.11 +$2,356.05)

Absolute Return (If FXI unchanged at $42.41): +6.6%
= +$3,028.81/$46,043.95
Annualized Return If Unchanged (ARIU): +8.0%
= (+$3,028.81/$46,043.95)*(365/299 days)

Absolute Return (If Assigned at $44.00): +10.4%
= +$4,777.81/$46,043.95
Annualized Return If Assigned (ARIA): +12.7%
= (+$4,777.81/$46,043.95)*(365/299 days)


4. Sprint Nextel Corp.(S) -- Continuation
The transactions history is as follows:
02/03/2011 Bought 1500 S @ $4.32
02/03/2011 Sold 15 S Feb2011 $4.50 Calls @ $.12
02/19/2011 Feb2011 S options expired
02/28/2011 Sold 15 S Apr2011 $4.50 Calls @ $.16
Note: The price of S was $4.37 when these Call options were sold.

Two possible overall performance results(including commissions) for the Sprint Nextel Corp.(S) transactions would be as follows:
Stock Purchase Cost: $6,488.95
= ($4.32*1500+$8.95 commission)

Net Profit:
(a) Options Income: +$379.60
= [1500*($.12+$.16) - 2*$20.20 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $4.37):
+$66.05 = ($4.37-$4.32)*1500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $4.50): +$261.05
= ($4.50-$4.32)*1500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $4.37): +$445.65
= (+$379.60 +$0.00 +$66.05)
Total Net Profit(If stock assigned at $4.50): +$640.65
= (+$379.60 +$0.00 +$261.05)

Absolute Return if Unchanged at $4.37: +6.9%
= +$445.65/$6,488.95
Annualized Return If Unchanged (ARIU): +34.8%
= (+$445.65/$6,488.95)*(365/72 days)

Absolute Return if Assigned at $4.50: +9.9%
= +$640.65/$6,488.95
Annualized Return If Assigned (ARIA): +50.1%
= (+$640.65/$6,488.95)*(365/72 days)

Establish China Mobile Ltd ADR Covered Calls

A new covered call position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of China Mobile Ltd ADR (CHL) covered calls. China Mobile is by far the world's largest mobile telecommunications service provider with over 589 million subscribers in China, and it continues to experience significant growth. To put their size in perspective, this is almost twice the total U.S. population as well as approximately three times the total number of wireless subscribers of both Verizon Wireless and AT&T combined.

The transactions were as follows:
02/23/2011 Bought 200 CHL @ $46.479
02/23/2011 Sold 2 CHL Mar2011 $47.50 Calls @ $.60

Because CHL continues rates very highly on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 17.36 is above this advisor's required threshold of 16.0), it was decided to establish a covered calls position in CHL with a Mar2011 expiration.





















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


Two possible overall performance results(including commissions) for the China Mobile Ltd ADR (CHL) transactions would be as follows:

Stock Purchase Cost: $9,304.75
= ($46.479*200+$8.95 commission)

Net Profit:
(a) Options Income: +$109.55
= ($.60*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $46.479): -$8.95
= ($46.479-$46.479)*200 - $8.95 commissions
(c) Capital Appreciation (If CHL above $47.50 at Mar2011 expiration): +$195.25
+($47.50-$46.479)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.479): +$100.60
= (+$109.55 +$0.00 -$8.95)
Total Net Profit(If stock price above $47.50 at Mar2011 options expiration): +$304.80= (+$109.55 +$0.00 +$195.25)

Absolute Return if Unchanged at $46.479: +1.1%
= +$100.60/$9,304.75
Annualized Return If Unchanged (ARIU): +17.2%
= (+$470.60/$22,000.00)*(365/23 days)

Absolute Return (If stock price above $47.50 at Mar2011 options expiration): +3.3%
= +$304.80/$9,304.75
Annualized Return (If stock price above $47.50 at expiration): +52.0%
= (+$304.80/$9,304.75)*(365/23 days)

The downside breakeven price at expiration is at $45.879 ($46.479 - $.60).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Mar2011 options expiration) for this China Mobile Ltd ADR (CHL) covered calls position is 58.6%. This compares with a probability of profit of 49.3% for a buy-and-hold of China Mobile (CHL) over the same time period.

Establish iShares MSCI South Korea ETF Covered Calls

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

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Mar2011:
02/22/2011 Bought 300 EWY @ $58.03
02/22/2011 Sold 3 EWY Mar2011 $59.00 Calls @ $1.38
Note: these call options were sold with the price of EWY at $58.53

Two possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $17,417.95
= ($58.03*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 (If EWY unchanged at $58.03): $-8.95
= ($58.03-$58.03)*300 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $59.00): +$282.05
= ($59.00-$58.03)*300 - $8.95 commissions

Total Net Profit(If EWY price unchanged at $58.03): +$393.85
= (+$402.80 +$0.00 -$8.95)
Total Net Profit(If EWY assigned at $59.00): +$684.85
= (+$402.80 +$0.00 +$282.05)

Absolute Return (If EWY unchanged at $58.03): +2.3%
= +$393.85/$17,417.95
Annualized Return If Unchanged (ARIU): +34.4%
= (+$393.85/$17,417.95)*(365/24 days)

Absolute Return if Exercised at $59.00: +3.9%
= +$684.85/$17,417.95
Annualized Return If Exercised (ARIE): +59.8%
= (+$684.85/$17,417.95)*(365/24 days)

February 2011 Expiration Transactions

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

- Decisions were made earlier this week to roll-up-and-out from two existing in-the-money Feb2011 covered calls positions (Petrobras and iShares MSCI Brazil ETF) into Mar2011 positions. Separate posts were made on this blog earlier this week for each of these transactions on Friday when they occurred.

Of the remaining nine positions that were held until Feb2011 expiration this past Friday:

- Two covered calls positions (Oshkosh Corp. and Research in Motion Ltd.) finished in-the-money. The calls were exercised and the shares were called away.

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

1. Oshkosh Corp. -- +75.7%

2. Research in Motion -- +51.1%

- The 100% cash-secured put position in Freeport McMoRan (FCX) ended out-of-the-money and was assigned for purchase. The stock underwent a 2-for-1 split since original sale of the three FCX puts at $110.00 strike price. So the assignment was for the purchase of 600 shares of FCX stock at half of the the original $110 strike price value which is $55.00. This advisor has already decided to retain the 600 FCX shares and will sell six options agains this stock to establish Mar2011 covered calls positions. The details of these transactions (from when the put options were initially sold) will be presented in a separate FCX continuation transaction post tomorrow immediately after the six calls are sold.

- The remaining six covered calls positions in the CCAP (Apple Inc., Best Buy Corp., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Microsoft Corp., and Sprint Corp.) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish Mar2011 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 two assigned Feb2011 covered calls positions were as follows:

1. Oshkosh Corp.(OSK) -- Closed
The transactions history for Oshkosh Corp.(OSK) was 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
02/19/2011 Feb2011 OSK Options Expired.
Note: the price of OSK was $37.55 upon options expiration.

The overall performance results(including commissions) for the Oshkosh Corp.(OSK) transactions was 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 (Stock assigned at $37.00): +$237.05
= ($37.00-$36.18)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $37.00): +$585.85
= (+$348.80 +$0.00 +$237.05)

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


2. Research in Motion(RIMM) -- Closed

The transactions history was 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.
02/19/2011 Feb2011 RIMM Options Expired.
Note: the price of RIMM was $69.86 upon options expiration.

The overall performance result(including commissions) for these Research In Motion Ltd.(RIMM) transactions was 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 (Stock assigned at $62.50): +$4,776.05
= ($62.50-$46.55)*300 - $8.95 commissions

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

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

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

Roll Up and Out -- iShares MSCI Brazil Fund ETF (EWZ)

Today is Feb2011 options expiration Friday. With iShares MSCI Brazil Fund ETF (EWZ) trading at $74.60, the two EWZ Feb2011 $73.00 calls were well in-the-money. The Covered Calls Advisor decided to retain the iShares MSCI Brazil Fund ETF position and roll-up-and-out to the Mar2011 expiration at the $74.00 strike price. The two Feb2011 $73.00 calls were bought back for $1.61 (only $.01 of time value remaining in each call option) and replaced by selling two in-the-money Mar2011 $74.00 strike options at $2.32 as follows:
02/18/2011 Buy-to-Close (BTC) 2 PBR Feb2011 $73.00 Call Options @ $1.61
02/18/2011 Sell-to-Open (STO) 2 PBR Mar2011 $74.00 Call Options @ $2.32

The overall transactions history as well as a possible return-on-investment result is detailed below:

1. iShares MSCI Brazil Fund ETF (EWZ) -- Continuation Transaction
The transactions history to date for iShares MSCI Brazil Fund ETF (EWZ) is as follows:
01/28/2011 Bought 200 EWZ @ $72.119
01/28/2011 Sold 2 EWZ Feb2011 $73.00 Calls @ $1.45
02/18/2011 Buy-to-Close (BTC) 2 PBR Feb2011 $73.00 Call Options @ $1.61
02/18/2011 Sell-to-Open (STO) 2 PBR Mar2011 $74.00 Call Options @ $2.32

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: +$411.10
= (200*($1.45-$1.61+$2.32) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $74.00): +$367.25
= ($74.00-$72.119)*200 - $8.95 commissions

Total Net Profit(If assigned at $74.00): +$778.35
= (+$411.10 +$0.00 +$367.25)

Absolute Return if Assigned at $74.00: +5.4%
= +$778.35/$14,432.75
Annualized Return If Assigned (ARIA): +39.4%
= (+$446.80/$14,432.75)*(365/50 days)

Roll Out -- Petrobras (PBR) Covered Calls

Today is Feb2011 options expiration Friday. With Petrobras (PBR) trading at $37.82, the three PBR Feb2011 $37.00 calls were in-the-money. The Covered Calls Advisor decided to retain the Petrobras position and roll-out to the Mar2011 expiration at the same $37.00 strike price. The three Feb2011 $37.00 calls were bought back for $.85 (only $.03 of time value remaining in each call option) and replaced by selling three out-of-the-money Feb2011 $37.00 strike options at $1.67 as follows:
02/18/2011 Buy-to-Close (BTC) 3 PBR Feb2011 $37.00 Call Options @ $.85
02/18/2011 Sell-to-Open (STO) 3 PBR Mar2011 $37.00 Call Options @ $1.67

The overall transactions history as well as a possible return-on-investment result is 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
02/18/2011 Buy-to-Close (BTC) 3 PBR Feb2011 $37.00 Call Options @ $.85
02/18/2011 Sell-to-Open (STO) 3 PBR Mar2011 $37.00 Call Options @ $1.67

A possible overall performance result(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: +$1,364.00
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89-$.85+$1.67) - 10*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR assigned at $37.00): -$710.95
= ($37.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR assigned at $37.00): +$839.65
= (+$1,364.00 +$186.60 -$710.95)

Absolute Return (If Assigned at $37.00): +7.1%
= +$839.65/$11,810.95)
Annualized Return If Assigned: +9.6%
= (+$839.65/$11,810.95)*(365/271 days)

This covered calls history demonstrates that as a result of receiving monthly options income, covered calls can achieve a net profit even when the underlying equity declines somewhat from the original purchase price.

Overall Market Meter Changes from Neutral to Slightly Bullish

Each month during options 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. Today the indicator has changed from its prior Neutral rating to a current rating of Slightly Bullish.

As shown in the chart below, the new Overall Market Meter average rating (blue bar at the bottom of the chart) is now Slightly Bullish:
















The current Market Meter Average of 3.78 is higher than the 3.33 of last month, and as such changes from the Neutral range (between 2.5 and 3.5) to the Slightly Bullish range (3.5 to 4.5) for establishing covered calls investing positions for the next options expiration month of March 2011. Of the nine factors used, six remained unchanged from last month. The three indicators that changed were:
(1) Interest Rates -- from Slightly Bullish to Bullish; and
(2) P/E Ratios -- from Slightly Bearish to Slightly Bullish; and
(3) Future Earnings Growth -- from Slightly Bullish to Bullish

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." Thus, new positions for Mar2011 options 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 -- three sub-factors being tracked here are the money multiplier, the velocity of money, and capacity utilization. A decision on whether or not to add these two factors into the Overall Market Meter rating system will be made within the next two months. There is a reasonably strong likelihood that the Baltic Dry Index will be replaced with the Leading Economic Index.

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

Establish Sprint Nextel Corp. Covered Calls

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

Established Sprint Nextel Corp.(S) Covered Calls for Feb2011:
02/03/2011 Bought 1500 S @ $4.32
02/03/2011 Sold 15 S Feb2011 $4.50 Calls @ $.12

This investment in Sprint is made primarily based on the current bullish analysis by both Credit Suisse and Greenlight Capital(David Einhorn). Credit Suisse's most recent commentary on Sprint's compelling valuation: "Sprint is trading at a FCF yield of 18% compared to peers at 10-12%. We believe this discount is untenable as Sprint starts to grow revenues in the 4th Qtr. We value the core business at $6 (13% FCF yield). In addition, we see $4 per share in incremental value from their Network Vision project. Sprint remains the most compelling stock in telecom; reiterate Overweight and $8 Target Price."

In Greenlight Capital's (David Einhorn) 4th Qtr 2010 letter, their comments on their new Sprint position includes: "Sprint’s disastrous Nextel acquisition in 2005 put the company on a painful downward spiral. We think S is now showing the early signs of a promising turnaround. Dan Hesse joined S in 2005 and became CEO in 2007. He has focused on customer service and improving the handset lineup, which have both improved considerably. This has driven subscriber additions and reduced customer churn. We believe S has a significant margin expansion opportunity as it consolidates two networks. Lastly, we think S’ uniquely large spectrum position through its direct holdings and via its interest in Clearwire is a valuable competitive advantage in an industry where spectrum is becoming a scarce resource. We value S at a discounted cash flow value of over $10 per share if management delivers on its targeted savings from network modernization."

Some possible overall performance results(including commissions) for the Sprint transactions would be as follows:
Stock Purchase Cost: $6,488.95
= ($4.32*1500+$8.95 commission)

Net Profit:
(a) Options Income: +$159.80
= (1500*$.12 - $20.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Sprint price unchanged at $4.32):
-$8.95 = ($4.32-$4.32)*1500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $4.50): +$261.05
= ($4.50-$4.32)*1500 - $8.95 commissions

Total Net Profit(If stock price unchanged at $4.32): +$150.85
= (+$159.80 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $4.50): +$420.85
= (+$159.80 +$0.00 +$261.05)

Absolute Return if Unchanged at $4.32: +2.3%
= +$150.85/$6,488.95
Annualized Return If Unchanged (ARIU): +53.0%
= (+$150.85/$6,488.95)*(365/16 days)

Absolute Return if Assigned at $4.50: +6.5%
= +$420.85/$6,488.95
Annualized Return If Assigned (ARIA): +148.0%
= (+$420.85/$6,488.95)*(365/16 days)

The downside breakeven price at expiration is at $4.20 ($4.32 - $.12).
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 Sprint Nextel Corp.(S) covered calls position is 61.9%. This compares with a probability of profit of 52.3% for a buy-and-hold of Sprint Nextel Corp.(S) stock over the same time period.

Returns -- Through January 2011

1. January 2011 Year-to-Date Results:

For the month of January 2011, the Covered Calls Advisor Portfolio (CCAP) increased by 2.15% compared with an increase of 2.12% for the benchmark Russell 3000 index.

CCAP Absolute Return (Jan 1st through Jan 31st, 2011) = +2.15%
($293,634.14-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through Jan 31st, 2011) = +2.12%
($76.54-$74.95)/$74.95


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.

Regards and Godspeed,
Jeff