Returns -- Through July 2011

1. July 2011 Year-to-Date Results:

As shown in the chart below, the Covered Calls Advisor Portfolio (CCAP) has outperformed the benchmark Russell 3000 index by 2.92 percentage points (+5.62% minus +2.70%) over the first seven months of calendar year 2011.













CCAP Absolute Return (Jan 1st through July 31st, 2011) = +5.62%
($303,611.69-$287,453.75)/$287,453.75

Benchmark Russell 3000(IWV) Absolute Return(Jan 1st through July 31st, 2011) = +2.70%($76.97-$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

Closed -- Freeport McMoRan Copper and Gold, Inc. Weekly Covered Calls Position

This past Monday, the Covered Calls Advisor established a new covered calls position in Freeport McMoRan Copper and Gold with a one-week options expiration date of July 22, 2011. The position transactions and the results are detailed below:

1. Freeport McMoRan Copper and Gold Inc.(FCX)
The transactions were as follows:
07/18/2011 Bought 200 FCX @ $54.95
07/18/2011 Sold 2 FCX Jul 22, 2011 $52.50 Calls @ $2.88
Note: The price of FCX was $54.98 when the options were sold.
07/23/2011 FCX options closed in-the-money and stock assigned at $52.50 strike price.
Note: The closing price of FCX at expiration was $55.67.

The overall performance result(including commissions) for this FCX covered calls position was follows:
Stock Purchase Cost: $10,998.95
= ($54.95*200+$8.95 commission)

Net Profit:
(a) Options Income: +$565.55
= (200*$2.88 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $52.50): -$498.95
= ($52.50-$54.95)*200 - $8.95 commissions

Total Net Profit(FCX assigned at $52.50): +$66.60
= (+$565.55 +$0.00 -$498.95)

Absolute Return (FCX stock Assigned at $52.50): +0.6%
= +$66.60/$10,998.95
Annualized Return: +44.2%
= (+$66.60/$10,998.95)*(365/5 days)

As you might recall, the Covered Calls Advisor invests almost exclusively in Monthly positions. This Weekly position was established on an experimental basis primarily to begin to evaluate whether Weeklies should have a more significant role in the Covered Calls Advisor Portfolio (CCAP). Despite the good result achieved with this particular FCX Weekly, this advisor has mixed feelings about seeking Weeklies as a part of the portfolio. The most enticing aspect of Weeklies is the prospect of capturing a significantly higher options income per day (i.e. higher theta) than is available from a comparable Monthly. However, this advantage is significantly mitigated by the increased commission costs frequency (i.e. 4 or 5 option positions sold per month instead of only one). Also, this advisor is significantly more comfortable with making a monthly forecast of the stock market's direction (i.e. Overall Market Meter monthly forecast). It seems close to impossible to forecast the market with any degree of confidence on a weekly basis. Thus, this advisor noticed that with this FCX Weekly postion, a more conservative (moderately in-the-money) position was established, whereas most other Monthly positions in the CCAP had been established slightly out-of-the-money which is consistent with the Covered Calls Advisor's current Overall Market Meter outlook of slightly bullish. Finally, this advisor has been investing successfully via Monthly covered calls for decades now, so there is a personal comfort level with Monthlies that is firmly entrenched. So, the Covered Calls Advisor will continue to experiment occasionally with Weeklies, but for now will continue to invest almost exclusively in Monthlies.

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.

Jeff

Closed -- Caterpillar Inc. Weekly 100% Cash-Secured Put Options Short Position

With this CAT weekly options expiration being tomorrow, and also with CAT scheduled to report quarterly earnings prior to the market open tomorrow, the Covered Calls Advisor decided to eliminate the risk associated with the earnings report and closed out the short puts position in CAT today at a very nice profit. The transactions history is:

07/18/2011 Sold 2 Caterpillar Inc. (CAT) Aug2011 $110.00 Puts @ $4.30
Note: the price of CAT stock was $106.86 today when these puts were sold.
07/21/2011 Bought-to-Close 2 CAT Aug2011 $110.00 Puts @ $1.10
Note: The price of CAT was $111.90 when this transaction was executed.

The overall performance result(including commissions) for the Caterpillar Inc. (CAT) transaction was as follows:
100% Cash-Secured Cost Basis: $22,000.00
= $110.00*200

Net Profit:
(a) Options Income: +$619.10
= ($4.30-$1.10)*200 shares - 2*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($110.00-$110.00)*200

Total Net Profit: +$619.10
= (+$619.10 +$0.00 +$0.00)

Absolute Return: +2.8%
= +$619.10/$22,000.00

The $619.10 profit on this trade captured 74% of the maximum potential profit of $840.60 that would have been achieved if the position would have been held until expiration tomorrow (Friday) afternoon's closing and if the stock had remained about $110.00. With the uncertainty surrounding the potential stock price movement after earnings are released tomorrow morning, it was determined that the most prudent decision was to capture the $619.10 profit now and to thereby abandon the potential for an additional $221.50 =($840.60-$619.10) profit. The Covered Calls Advisor decided to show only the Absolute Return for this transaction and to forego the normal practice of converting the absolute return to its associated annualized return on investment percent. This +2.7% absolute return in only 3 days is an outstanding result, but extrapolating to a very, very large annualized return would not provide a meaningful comparison considering the very short duration of this trade.

Covered Call Continuation Transaction -- ProShares UltraShort 20+ Years Treasury ETF (TBT)

The Jul2011 covered calls position in ProShares UltraShort 20+ Years Treasury ETF (TBT) expired last Friday. Today, a decision was made to retain the 200 shares in ProShares UltraShort 20+ Years Treasury ETF (TBT) in the Covered Calls Advisor Portfolio and to re-establish a covered calls position with an Aug2011 expiration and at the $34.00 strike price. The detailed transactions history for this TBT position as well as possible results for this investment are as follows:

1. ProShares UltraShort 20+ Years Treasury ETF (TBT) -- Continuation
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.
07/16/2011 Jul2011 TBT options expired.
07/21/2011 Sold 2 TBT Aug2011 $34.00 Calls @$.77
Note: The price of TBT was $33.28 when these call options were sold.

Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$272.67
= 200*($.36+$.39+$.77) - 3*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $33.28):
-$502.95 = ($33.28-$35.75)*200 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $34.00): -$358.95
= ($34.00-$35.75)*200 - $8.95 commissions

Total Net Profit(If TBT unchanged at $33.28): -$230.30
= (+$272.65 +$0.00 -$502.95)
Total Net Profit(If TBT exercised at $34.00): -$86.30
= (+$272.65 +$0.00 -$358.95)

Absolute Return if Unchanged at $33.28: -3.2%
= -$230.30/$7,158.95
Annualized Return If Unchanged (ARIU) -10.7%
= (-$230.30/$7,158.95)*(365/110 days)

Absolute Return if Assigned at $34.00: -1.2%
= -$86.30/$7,158.95
Annualized Return If Assigned (ARIA) -4.0%
= (-$86.30/$7,158.95)*(365/110 days)

Establish General Motors Co. Covered Calls

A new covered calls position was established yesterday in the Covered Calls Advisor Portfolio(CCAP) with the purchase of General Motors Co.(GM) covered calls as follows:

Established General Motors Co.(GM) Covered Calls for Aug2011:
07/20/2011 Bought 300 GM @ $29.32
07/20/2011 Sold 3 GM Aug2011 $30.00 Calls @ $.79
Note: the price of GM was $29.45 when the call options were sold.

GM rates slightly above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (see below that Total Points of 16.44 is above this advisor's required buy threshold of 16.0). GM's balance sheet has solidified and the current valuation metrics are extremely attractive. There is 50%+ upside potential in GM's stock price over the next year if two situations occur: (1) GM achieves reasonably successful new product launches for the 2012 and 2013 model years; and (2) there is an upturn in annualized GDP in the U.S. in the vicinity of 3.0%. The Covered Calls Advisor believes that both of these outcomes are likely, so a moderately bullish covered calls position in GM was established.





















Note: Click on chart above for larger image.

Two possible overall performance results(including commissions) for the General Motors transactions are as follows:

Stock Purchase Cost: $8,804.95
= ($29.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$225.80
= ($.79*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $29.32): -$8.95
= ($29.32-$29.32)*300 - $8.95 commissions
(c) Capital Appreciation (If GM above $30.00 at Aug2011 expiration): +$195.05
+($30.00-$29.32)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $29.32): +$216.85
= (+$225.80 +$0.00 -$8.95)
Total Net Profit(If stock price above $30.00 at Aug2011 options expiration): +$420.85= (+$225.80 +$0.00 +$195.05)

Absolute Return if Unchanged at $29.32: +2.5%
= +$216.85/$8,804.95
Annualized Return If Unchanged (ARIU): +29.0%
= (+$216.85/$8,804.95)*(365/31 days)

Absolute Return (If stock price above $30.00 at Aug2011 options expiration): +4.8%
= +$420.85/$8,804.95
Annualized Return (If stock price above $30.00 at expiration): +56.3%
= (+$420.85/$8,804.95)*(365/31 days)

The downside breakeven price at expiration is at $28.53 ($29.32 - $.79).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Aug2011 options expiration) for this General Motors covered calls position is 64.3%. This compares with a probability of profit of 51.7% for a buy-and-hold of GM over the same time period.

Establish Valero Energy Corp. Covered Calls

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

Established Valero Energy Corp.(VLO) Covered Calls for Aug2011:
07/20/2011 Bought 300 VLO @ $25.72
07/20/2011 Sold 3 VLO Aug2011 $26.00 Calls @ $.97
Note: the price of VLO was $25.81 when the call options were sold.
08/15/2011 Ex-dividend payment of $.05 per share.

With total capacity of approximately 3.0 million barrels per day, Valero Energy Corp. is the largest petroleum refiner and marketer in the U.S. The company has the industry's most complex and sophisticated refining system. Most of its 16 refineries throughout the U.S., Canada and Aruba are able to process heavy, low-quality crude oil. The company has a growing network of retail outlets in the Great Plains, Southwest and Northeast.

VLO rates above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 17.92 is above this advisor's required threshold of 16.0), so it was decided to establish a covered calls position in VLO with an Aug2011 expiration.





















Note: Click on chart above for larger image.

Two possible overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions would be as follows:

Stock Purchase Cost: $7,724.95
= ($25.72*300+$8.95 commission)

Net Profit:
(a) Options Income: +$279.80
= ($.97*300 shares) - $11.20 commissions
(b) Dividend Income: +$15.00 = $.05*300 shares (ex-dividend expected on 8/15/2011)
(c) Capital Appreciation (If stock price unchanged at $25.72): -$8.95
= ($25.72-$25.72)*300 - $8.95 commissions
(c) Capital Appreciation (If VLO above $26.00 at Aug2011 expiration): +$75.05
+($26.00-$25.72)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.72): +$285.85
= (+$279.80 +$15.00 -$8.95)
Total Net Profit(If stock price above $26.00 at Aug2011 options expiration): +$369.85= (+$279.80 +$15.00 +$75.05)

Absolute Return if Unchanged at $25.72: +3.7%
= +$285.85/$7,724.95
Annualized Return If Unchanged (ARIU): +43.6%
= (+$285.85/$7,724.95)*(365/31 days)

Absolute Return (If stock price above $26.00 at Aug2011 options expiration): +4.8%
= +$369.85/$7,724.95
Annualized Return (If stock price above $26.00 at expiration): +56.4%
= (+$369.85/$7,724.95)*(365/23 days)

The downside breakeven price at expiration is at $24.75 ($25.72 - $.97).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Aug2011 options expiration) for this Valero Energy Corp.(VLO) covered calls position is 66.1%. This compares with a probability of profit of 51.8% for a buy-and-hold of Valero over the same time period.

Covered Calls Continuation Transactions

Upon Jul2011 options expiration, seven covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. On Monday, a decision was made to re-establish covered calls positions for two equities (iShares MSCI China ETF and Petrobras ADR) by selling call options to establish Aug2011 covered calls. Today, covered calls positions were re-established for four additional equities (China Mobile Ltd., International Paper Co., iShare Emerging Markets ETF, and Morgan Stanley) that had previously expired upon the Jul2011 options expiration. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. China Mobile Ltd.(CHL) -- Continuation
The transactions history is as follows:
02/23/2011 Bought 200 CHL @ $46.479
02/23/2011 Sold 2 CHL Mar2011 $47.50 Calls @ $.60
03/19/2011 Mar2011 Options Expired
03/30/2011 Sold 2 CHL May2011 $47.50 Calls @ $.55
Note: price of CHL was $46.22 when these options were sold.
05/10/2011 Ex-dividend payment of $.9237 per share.
05/21/2011 May2011 Options Expiration will occur.
05/31/2011 Sold 2 CHL Jul2011 $47.50 Calls @ $.35
Note: The price of CHL was $45.59 when these call options were sold.
07/16/2011 Jul2011 CHL options expired.
07/18/2011 Sold 2 CHL Aug2011 $47.50 Calls @$.55
Note: The price of CHL was $46.45 when these call options were sold.

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: +$368.20
= ($.60 + $.55 + $.35 + $.55)*200 shares - 4*$10.45 commissions
(b) Dividend Income: +$184.74 = $.9237 * 200 shares
(c) Capital Appreciation (If stock price unchanged at $46.45): -$14.75
= ($46.45 -$46.479)*200 - $8.95 commissions
(c) Capital Appreciation (If CHL assigned at $47.50 at Aug2011 expiration): +$195.25
+($47.50 -$46.479)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.45): +$538.19
= (+$368.20 +$184.74 -$14.75)
Total Net Profit(If stock price above $47.50 at Aug2011 options expiration): +$748.19= (+$368.20 +$184.74 +$195.25)

Absolute Return if Unchanged at $46.45: +5.8%
= +$538.19/$9,304.75
Annualized Return If Unchanged (ARIU): +11.9%
= (+$538.19/$9,304.75)*(365/178 days)

Absolute Return (If stock assigned at $47.50 upon Aug2011 options expiration): +8.0%
= +$748.19/$9,304.75
Annualized Return if stock assigned at expiration (ARIA): +16.5%
= (+$748.19/$9,304.75)*(365/178 days)


2. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
05/17/2011 Bought 500 IP @ $31.26
05/17/2011 Sold 5 IP Jun2011 $32.00 Calls @ $.82
06/18/2011 Jun2011 Options Expired
Note: the price of IP was $26.57 upon options expiration.
06/21/2011 Sold 5 IP Jul2011 $30.00 Calls @ $.38
Note: price of IP stock was $28.56 when these options were sold.
07/16/2011 Jul2011 IP options expired.
07/18/2011 Sold 5 IP Aug2011 $30.00 Calls @$.90
Note: The price of IP was $29.79 when these call options were sold.
08/11/2011 Ex-Dividend of $.2625 per share

Two possible overall performance results(including commissions) for the International Paper Co.(IP) transactions would be as follows:
Stock Purchase Cost: $15,638.95
= ($31.26*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,011.90
= (500*($.82+$.38+$.90) - 3*$12.70 commissions)
(b) Dividend Income: $131.25 = $.2625 * 500 shares
(c) Capital Appreciation (If stock unchanged at $29.79 at expiration): -$743.95
= ($29.79-$31.26)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $30.00): -$638.95
= ($30.00-$31.26)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at $29.79 at expiration): +$399.20
= (+$1,011.90 +$131.25 -$743.95)
Total Net Profit (If stock assigned at $30.00): +504.20
= (+$1,011.90 +$131.25 -$638.95)

1. Absolute Return (If stock unchanged at $29.79 at expiration): +2.6%
= +$399.20/$15,638.95
Annualized Return (If stock unchanged at expiration): +9.8%
= (+$399.20/$15,638.95)*(365/95 days)

2. Absolute Return (If stock assigned at $30.00 at expiration): +3.2%
= +$504.20/$15,638.95
Annualized Return (If stock assigned at $30.00): +12.4%
= (+$504.20/$15,638.95)*(365/95 days)


3. iShares MSCI Emerging Markets ETF (EEM) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 500 EEM @ $47.81
04/19/2011 Sold 5 EEM May2011 $49.00 Calls @ $.83
Note: the price of EEM was $48.32 when the calls were sold.
05/27/2011 Sold 5 EEM Jun2011 $49.00 Calls @ $.44
Note: the price of EEM was $47.83 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.

Two possible overall performance results(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,344.20
= [500*($.83 +$.35+$.62+$.99) - 4*$12.70 commissions]
(b) Distribution Income: $230.46 = $.46092 * 500 shares
(c) Capital Appreciation (If EEM unchanged at $46.55 at expiration): -$638.95
= ($46.55-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): -$413.95
= ($47.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $46.55 at expiration): +$935.71
= (+$1,344.20 +$230.46 -$638.95)
Total Net Profit (If EEM assigned at $47.00): +$1,160.71
= (+$1,344.20 +$230.46 -$413.95)

1. Absolute Return (If stock unchanged at $46.55 at expiration): +3.9%
= +$935.71/$23,913.95
Annualized Return (If stock unchanged at expiration): +11.5%
= (+$935.71/$23,913.95)*(365/124 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +4.9%
= +$1,160.71/$23,913.95
Annualized Return (If stock assigned at $49.00): +14.3%
= (+$1,160.71/$23,913.95)*(365/124 days)


4. Morgan Stanley (MS) -- Continuation
The transactions history is as follows:
06/03/2011 Bought 300 MS @ $22.988
06/03/2011 Sold 3 MS Jul2011 $25.00 Calls @ $.26
Note: the price of MS was $23.14 when the call options were sold.
07/16/2011 Jul2011 MS options expired.
07/18/2011 Sold 3 MS Sep2011 $22.00 Calls @$.66
Note: The price of MS was $20.82 when these call options were sold.
07/27/2011 Ex-Dividend of $.05 per share


Two possible overall performance results(including commissions) for the Morgan Stanley transactions would be as follows:
Stock Purchase Cost: $6,905.35
= ($22.988*300+$8.95 commission)

Net Profit:
(a) Options Income: +$161.60
= 300*($.26+$.66) - 2*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05 * 300 shares
(c) Capital Appreciation (If MS unchanged at $20.82):
-$442.55 = ($20.82-$22.988)*300 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $22.00): -$305.35
= ($22.00-$22.988)*300 - $8.95 commissions

Total Net Profit(If MS unchanged at $20.82): -$265.95
= (+$161.60 +$15.00 -$442.55)
Total Net Profit(If MS exercised at $22.00): -$128.75
= (+$161.60 +$15.00 -$305.35)

Absolute Return if Unchanged at $20.82: -3.9%
= -$265.95/$6,905.35
Annualized Return If Unchanged (ARIU) -13.3%
= (-$265.95/$6,905.35)*(365/106 days)

Absolute Return if Assigned at $37.00: -1.9%
= -$128.75/$6,905.35
Annualized Return If Assigned (ARIA) -6.4%
= (-$128.75/$6,905.35)*(365/106 days)

Establish iShares MSCI Taiwan ETF Covered Calls

Today, a new covered calls position was established in the iShares MSCI Taiwan ETF (EWT). This position was legged into since the 1,000 shares of EWT were purchased yesterday and the ten Aug2011 call options were sold today as follows:

Established iShares MSCI Taiwan ETF (EWT) Covered Calls for Aug2011:
07/18/2011 Bought 1,000 EWT @ $14.65
07/19/2011 Sold 10 EWT Aug2011 $15.00 Calls @ $.31
Note: The price of EWT was $14.85 today when the options were sold.

EWT currently ranks 3rd in the Covered Calls Advisor's Country Value Rankings. With this purchase, the Covered Calls Advisor Portfolio (CCAP) now holds positions in each of the Top 5 ranked countries in these rankings [China(1st), Hong Kong(2nd), Taiwan(3rd), South Korea(4th), and Germany (5th)]. This is the first time that EWT has been purchased in the CCAP, largely because the implied volatility (IV) did not previously meet this advisor's minimum threshold of being at least 20% above the IV of the S&P500. But with the decline in EWT prices during the past 5 weeks, EWT's associated IV has now increased to a point where it does meet that threshold requirement, so a covered calls position was established today.

Two possible overall performance results(including commissions) for the EWT transactions would be as follows:
Stock Purchase Cost: $14,650.95
= ($14.65*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$293.55
= (1,000*$.31 - $16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $15.00): +$341.05
= ($15.00-$14.65)*1,000 - $8.95 commissions

Total Net Profit(If equity price unchanged at $14.65): +$284.60
= (+$293.55 +$0.00 -$8.95)
Total Net Profit(If ETF price assigned at $26.00): +$634.60
= (+$293.55 +$0.00 +$341.05)

Absolute Return if Unchanged at $14.65: +1.9%
= +$284.60/$14,650.95
Annualized Return If Unchanged (ARIU) +22.2%
= (+$284.60/$14,650.95)*(365/32 days)

Absolute Return if Assigned at $15.00: +4.3%
= +$634.60/$14,650.95
Annualized Return If Assigned (ARIA) +49.4%
= (+$634.60/$14,650.95)*(365/32 days)

The downside breakeven price at expiration is at $14.34 ($14.65 - $.31).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Aug2011 options expiration) for this iShares MSCI Taiwan ETF (EWT) covered calls position is 64.9%. This compares with a probability of profit of 51.2% for a buy-and-hold of iShares MSCI Taiwan ETF (EWT) over the same time period.

Establish iShares MSCI Germany ETF Covered Calls

Yesterday, the Covered Calls Advisor established a new covered calls position in iShares MSCI Germany ETF (EWG). The photo on the right shows the bull and bear in front of the Frankfurt Stock Exchange in Germany.

Established iShares MSCI Germany ETF (EWG) Covered Calls for Sep2011:
07/18/2011 Bought 500 EWG @ $25.03
07/18/2011 Sold 5 EWG Sep2011 $26.00 Calls @ $.70
Note: The price of EWG was $25.06 when the options were sold.

EWG currently ranks 5th in the Covered Calls Advisor's Country Value Rankings. European stocks took another 1.5%+ decline in morning trading today as the European debt fears continued. The Covered Calls Advisor took that opportunity to establish a covered calls position in EWG, which provides a well-diversified exposure to the overall German stock market.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $12,523.95
= ($25.03*500+$8.95 commission)

Net Profit:
(a) Options Income: +$337.30
= (500*$.70 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $26.00): +$476.05
= ($26.00-$25.03)*500 - $8.95 commissions

Total Net Profit(If equity price unchanged at $25.03): +$328.35
= (+$337.30 +$0.00 -$8.95)
Total Net Profit(If ETF price assigned at $26.00): +$804.40
= (+$337.30 +$0.00 +$476.05)

Absolute Return if Unchanged at $25.03: +2.6%
= +$328.35/$12,523.95
Annualized Return If Unchanged (ARIU) +15.7%
= (+$328.35/$12,523.95)*(365/61 days)

Absolute Return if Assigned at $26.00: +6.4%
= +$804.40/$12,523.95
Annualized Return If Assigned (ARIA) +38.4%
= (+$804.40/$12,523.95)*(365/61 days)

Establish Freeport McMoRan Copper and Gold, Inc. Covered Calls

The prior covered calls position in Freeport McMoRan Copper and Gold Inc.(FCX) with a Jul2011 expiration closed in-the-money upon options expiration last Friday and was therefore assigned. Today, the Covered Calls Advisor decided to re-establish a new covered calls position in Freeport McMoRan Copper and Gold with a one-week July 22, 2011 expiration as follows:

1. Freeport McMoRan Copper and Gold Inc.(FCX)
The transactions were as follows:
07/18/2011 Bought 200 FCX @ $54.95
07/18/2011 Sold 2 FCX Jul 22, 2011 $52.50 Calls @ $2.88
Note: The price of FCX was $54.98 when the options were sold.

FCX remains a value-oriented stock selection in the materials (primarily copper but also gold) sector. The Weekly options were selected because of the relatively high implied volatility in the options and thus the attractive option premiums they offer for a very short (4 trading days) time period. But it is possible that copper could experience a short-term price pull-back which might cause an accompanying decline in the price of FCX. So, because of this short duration, a more conservative in-the-money strike price of $52.50 was selected with the stock being purchased at $54.95 (as shown above).

A possible overall performance result(including commissions) for this FCX covered calls position would be as follows:
Stock Purchase Cost: $10,998.95
= ($54.95*200+$8.95 commission)

Net Profit:
(a) Options Income: +$565.55
= (200*$2.88 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $52.50): -498.95
= ($52.50-$54.95)*200 - $8.95 commissions

Total Net Profit(If FCX assigned at $52.50): +$66.60
= (+$565.55 +$0.00 -$498.95)

Absolute Return if Assigned at $52.50: +0.6%
= +$66.60/$10,998.95
Annualized Return If Assigned (ARIA) +55.3%
= (+$66.60/$10,998.95)*(365/4 days)

Sold 100% Cash-Secured Puts -- Mylan Inc.

Today, the Covered Calls Advisor decided to establish a new 100% Cash-Secured Puts position in Mylan Inc. (MYL) with an Aug2011 expiration.

Mylan Inc. is a leading manufacturer of generic pharmaceutical products
in finished tablet, capsule and powder dosage forms. MYL markets more than 1,000 products throughout the world with sales from: North America 53%, Europe
33%, and Asia/Pacific 14%. Generics account for about 90% of total revenues, with specialty products representing the balance. As patents continue to expire over the next few years for many successful branded drugs, Mylan is well-positioned to capture a significant share of new generics which bodes well for its future growth rate.

1. Mylan Inc. (MYL) -- New Position
The transaction was as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.

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 five put options sold. Two possible overall performance results(including commissions) for the Mylan Inc. (MYL) transaction would be as follows:
100% Cash-Secured Cost Basis: $11,500.00
= $23.00*500

Net Profit:
(a) Options Income: +$517.30
= ($1.06*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $22.98 and thus stock assigned at $23.00 at expiration): -$18.95
= ($22.98-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MYL stock above $23.00 at Aug2011 expiration): -$8.95
= ($23.00-$23.00) -$8.95 commissions

Total Net Profit(If stock price unchanged at $22.98): +$498.35
= (+$517.30 +$0.00 -$18.95)
Total Net Profit(If stock price above $23.00 at Aug2011 options expiration): +$508.35
= (+$517.30 +$0.00 -$8.95)

Absolute Return if Unchanged at $22.98: +4.0%
= +$498.35/$11,500.00
Annualized Return If Unchanged (ARIU): +47.9%
= (+$498.35/$11,500.00)*(365/33 days)

Absolute Return (If stock price above $23.00 at Aug2011 options expiration and put options thus expire worthless): +4.4%
= +$508.35/$11,500.00
Annualized Return (If stock price above $23.00 at expiration): +48.9%
= (+$508.35/$11,500.00)*(365/33 days)

Sold Weekly 100% Cash-Secured Put Options -- Caterpillar Inc.

Normally, the Covered Calls Advisor sells monthly options. Today, for the first time, weekly 100% cash-secured put options were sold in the Covered Calls Advisor Portfolio(CCAP). In this instance, the cash-secured put was selected primarily as an experiment to see if any additional insights are gleaned by comparing this weekly put option duration against the monthly duration this advisor is accustomed to. The primary reason Caterpillar Inc. was selected for this Weekly option was because of the relatively high implied volatility in the options and thus the attractive option premiums they offer for a very short (4 trading days) time period. An important reason for the very high volatility is the fact that quarterly earnings will be released this Friday. This advisor expects earnings to exceed analysts' expectations, so a bullish in-the-money ($110 strike price) July 22, 2011 put option was selected today when the stock was selling at $106.86.

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. Along with evaluating the pros and cons of the weekly options vis-a-vis the monthlies, the pros and cons of selling 100% cash-secured puts (in lieu of the traditional covered calls) will also be part of the overall evaluation of this position when this investment is completed.


1. Caterpillar Inc. (CAT) -- New Position
Today, two Caterpillar Inc. (CAT) 100% cash-secured put options were sold in the Covered Calls Advisor Portfolio. The transaction was as follows:

07/18/2011 Sold 2 Caterpillar Inc. (CAT) Aug2011 $110.00 Puts @ $4.30
Note: the price of CAT stock was $106.86 today when these puts were sold.

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

Net Profit:
(a) Options Income: +$849.55
= ($4.30*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $106.86 and thus stock assigned at $110.00 at expiration): -$636.95
= ($106.86-$110.00)*200 - $8.95 commissions
(c) Capital Appreciation (If FCX stock above $110.00 at July 22,2011 expiration): -$8.95 = ($106.10-$106.10) -$8.95 commissions

Total Net Profit(If stock price unchanged at $106.86): +$212.60
= (+$849.55 +$0.00 -$636.95)
Total Net Profit(If stock price above $110.00 at July 22,2011 options expiration): +$840.60
= (+$849.55 +$0.00 -$8.95)

Absolute Return if Unchanged at $106.86: +1.0%
= +$212.60/$22,000.00
Annualized Return If Unchanged (ARIU): +88.2%
= (+$212.60/$22,000.00)*(365/4 days)

Absolute Return (If stock price above $110.00 at Jul 22, 2011 options expiration and put options thus expire worthless): +3.8%
= +$840.60/$22,000.00
Annualized Return (If stock price above $110.00 at expiration): +348.7%
= (+$840.60/$22,000.00)*(365/4 days)

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

Covered Calls Continuation Transactions

Upon Jul2011 options expiration, seven covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for two equities (iShares MSCI China ETF and Petrobras ADR) with Aug2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. iShares MSCI China ETF (FXI) -- Continuation
The transactions history is as follows:
04/18/2011 Bought 1,000 FXI @ $44.80
04/20/2011 Sold 10 FXI May2011 $47.00 Calls @ $.49
Note: the price of FXI was $45.88 when the calls were sold.
05/31/2011 Sold 10 FXI Jul2011 $47.00 Calls @ $.37
Note: The price of FXI was $45.18 when these call options were sold.
06/21/2011 FXI ETF distribution of $.68555 per share
07/16/2011 Jul2011 FXI options expired.
07/18/2011 Sold 10 FXI Aug2011 $42.00 Calls @$.71

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$1,531.90
= (1,000*($.49+$.37+$.71) - 3*$12.70 commissions)
(b) Distribution Income: $685.55 = $.68555 * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $41.08 at expiration): -$3,728.95
= ($41.08-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If FXI assigned at $42.00 at expiration): -$2,808.95
= ($42.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $41.08 at expiration): -$1,511.50
= (+$1,531.90 +$685.55 -$3,728.95)
Total Net Profit (If FXI assigned at $42.00): +20.40
= (+$1,531.90 +$685.55 -$2,197.05)

1. Absolute Return (If FXI unchanged at $41.08 at expiration): -3.4%
= -$1,511.50/$44,808.95
Annualized Return (If FXI unchanged at expiration): -9.9%
= (-$1,511.50/$44,808.95)*(365/124 days)

2. Absolute Return (If FXI assigned at $42.00 at expiration): +0.05%
= +$20.40/$44,808.95
Annualized Return If Assigned (ARIA): +0.13%
= (+$20.40/$44,808.95)*(365/124 days)


2. Petrobras ADR (PBR) -- Continuation
The transactions history to date for Petrobras ADR (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
03/18/2011 Buy-to-Close (BTC) 3 PBR Mar2011 $37.00 Call Options @ $2.19
03/18/2011 Sell-to-Open (STO) 3 PBR Apr2011 $40.00 Call Options @ $1.01
Note: The price of PBR was $39.23 when these options were sold.
04/16/2011 Apr2011 PBR Options Expired.
Note: the price of PBR was $37.81 upon options expiration.
04/20/2011 Sold 3 PBR May2011 $38.00 Calls @ $.87
Note: the price of PBR was $37.51 when these call options were sold.
05/21/2011 May2011 Options Expired
Note: the price of PBR was $33.87 upon options expiration.
06/28/2011 Sold 3 PBR Jul2011 $33.00 Calls @ $.59
Note: price of PBR was $32.82 when these options were sold.
07/16/2011 Jul2011 PBR options expired.
07/18/2011 Sold 3 PBR Aug2011 $33.00 Calls @$.60

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: +$1,583.20
= (300*($1.05+$.55+$.58+$.63+$.62+$.54+$.590-$1.35+$.89-$.85+$1.67-$2.19+$1.01+$.87+$.59+$.60) - 14*$11.20 commissions)
(b) Dividend Income: +$186.60 (2*$.193 + $.236)*300 shares -- Three ex-Dividend dates
(c) Capital Appreciation (If PBR price unchanged at $32.18): -$2,156.95
= ($32.18-$39.34)*300 - $8.95 commissions
(c) Capital Appreciation (If PBR assigned at $33.00): -$1,910.95
= ($33.00-$39.34)*300 - $8.95 commissions

Total Net Profit(If PBR unchanged at $32.18): -$387.15
= (+$1,583.20 +$186.60 -$2,156.95)
Total Net Profit(If PBR assigned at $33.00): -$141.15
= (+$1,583.20 +$186.60 -$1,910.95)

1. Absolute Return (If Unchanged at $32.18): -3.3%
= -$387.15/$11,810.95
Annualized Return If Unchanged (ARIU): -2.8%
= (-$387.15/$11,810.95)*(365/425 days)

2. Absolute Return (If Assigned at $33.00): -1.2%
= -$141.15/$11,810.95
Annualized Return If Assigned(ARIA): -1.0%
= (-$141.15/$11,810.95)*(365/425 days)

Establish iShares MSCI South Korea ETF Covered Calls

The prior covered calls position in EWY with a Jul2011 expiration was called in-the-money upon options expiration last Friday and was therefore assigned. Today, the Covered Calls Advisor decided to re-establish a new covered calls position in iShares MSCI South Korea ETF (EWY) with an Aug2011 expiration as follows:

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Aug2011:
07/18/2011 Bought 500 EWY @ $64.76
07/18/2011 Sold 5 EWY Aug2011 $66.00 Calls @ $1.45
Note: The price of EWY was $64.80 when the options were sold.

EWY remains a good investment vehicle for capturing widespread exposure to the diversified South Korean economy and its stock market through a single equity. South Korea is a good value-oriented investment since some traditional value metrics such as P/E and P/Book are significantly less than those of the U.S., while the expectation for GDP growth with relatively modest inflation for 2011 also favors South Korea. In addition, South Korea currently ranks 4th in the Covered Calls Advisor's Country Value Rankings.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $32,388.95
= ($64.76*500+$8.95 commission)

Net Profit:
(a) Options Income: +$712.30
= (500*$1.45 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If equity price unchanged at $64.76):
-$8.95 = ($64.76-$64.76)*500 - $8.95 commissions
(c) Capital Appreciation (If assigned at $66.00): +$611.05
= ($66.00-$64.76)*500 - $8.95 commissions

Total Net Profit(If equity price unchanged at $64.76): +$703.35
= (+$712.30 +$0.00 -$8.95)
Total Net Profit(If ETF price assigned at $66.00): +$1,323.35
= (+$712.30 +$0.00 +$611.05)

Absolute Return if Unchanged at $64.76: +2.2%
= +$703.35/$32,388.95
Annualized Return If Unchanged (ARIU) +24.0%
= (+$703.35/$32,388.95)*(365/33 days)

Absolute Return if Assigned at $66.00: +4.1%
= +$1,323.35/$32,388.95
Annualized Return If Assigned (ARIA) +45.2%
= (+$1,323.35/$32,388.95)*(365/33 days)

July 2011 Expiration Results

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

- One Jul2011 covered calls position in Microsoft Corp.(MSFT) was in-the-money late this past week and was rolled-up-and-out to an Aug2011 covered calls position. These transactions were reported on this blog on Thursday when they occurred.

- Seven covered calls positions in the CCAP (China Mobile Ltd., International Paper, iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Morgan Stanley, Petrobras, and ProShares UltraShort 20+ Year Treasury ETF) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish August 2011 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.

- Three covered calls positions (Apple Inc., Freeport McMoran Copper and Gold Inc., and iShares MSCI South Korea ETF) were in-the-money and were called away upon option expiration last Friday. The annualized return on investment results for these covered calls were:
- Apple Inc. -- +31.8%
- Freeport McMoRan Copper and Gold, Inc. -- +20.7%
- iShares MSCI South Korea ETF -- +16.9%
The detailed history for these positions are provided below.

1. Apple Inc.(AAPL) -- Closed
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.
04/16/2011 Apr2011 AAPL options expired.
04/26/2011 Sold 1 AAPL May2011 $350.00 Call @ $8.95
Note: The price of AAPL was $353.06 when this call option was sold.
05/31/2011 Sold 1 AAPL Jun2011 $360.00 Call @ $.90
Note: The price of AAPL was $343.63 when this call option was sold.
06/18/2011 Jun2011 Options Expired
Note: the price of AAPL was $320.26 upon options expiration.
06/28/2011 Sold 1 AAPL Jul2011 $345.00 Call Option @ $2.77
Note: price of AAPL stock was $335.75 when this option was sold.
07/16/2011 Jul2011 AAPL Options Expired.
Note: the price of AAPL was $364.92 upon options expiration.

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

Net Profit:
(a) Options Income: +$3,443.80
= [100*($6.10+$5.50+$10.80+$8.95+$.90+$2.77) - 6*$9.70 commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $345.00): +$2,381.05
= ($345.00-$321.10)*100 - $8.95 commissions

Total Net Profit(Stock assigned at $345.00): +$5,824.85
= (+$3,443.80 +$0.00 +$2,381.05)

Absolute Return (Stock Assigned at $345.00): +18.1%
= +$5,824.85/$32,118.95
Annualized Return: +31.8%
= (+$5,824.85/$32,118.95)*(365/208 days)


2. Freeport McMoRan Copper and Gold Inc.(FCX) -- Closed
The transactions history was as follows:
01/28/2011 Sold 3 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.
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.
03/17/2011 Sold 6 FCX Apr2011 $55.00 Calls @ $1.43
Note: The price of FCX was $52.15 when these call options were sold.
04/16/2011 Apr2011 FCX Options Expired.
Note: the price of FCX was $51.17 upon options expiration.
04/20/2011 Sold 6 FCX May2011 $55.00 Calls @ $1.95
Note: the price of FCX was $54.73 when these call options were sold.
05/11/2011 $150.00 Ex-Dividend ($.250 per share * 600 shares)
05/15/2011 Supplementary Dividend ($.50 per share) for shares of record on 5/15/2011.
05/21/2011 May2011 Options Expiration Date
05/27/2011 Sold 6 FCX Jun2011 $55.00 Calls @ $.44
Note: the price of FCX was $51.60 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of FCX was $47.93 upon options expiration.
06/21/2011 Sold 6 FCX Jul2011 $52.50 Calls @ $.52
Note: price of FCX stock was $49.16 when these options were sold.
07/16/2011 Jul2011 FCX Options Expired.
Note: the price of FCX was $55.34 upon options expiration.

The resulting overall performance (including commissions) for these Freeport-McMoRan Copper and Gold Inc.(FCX) transactions was as follows:
Stock Purchase Cost: $33,008.95
= ($110.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$4,219.85
= [300*$6.35 + 600*($1.43+$1.95+$.44+$.52) - 3*$11.20 - 4*$13.45 commissions]
(b) Dividend Income: +$450.00 [($.50 + $.25) * 600 shares]
(c) Capital Appreciation (Stock assigned at $52.50): -$1,508.95
= ($52.50-$55.00)*600 - $8.95 commissions

Total Net Profit(Stock assigned at $52.50): +$3,160.90
= (+$4,219.85 +$450.00 -$1,508.95)

Absolute Return (Stock Assigned at $52.50): +9.6%
= +$3,160.90/$33,008.95
Annualized Return: +20.7%
= (+$3,160.90/$33,008.95)*(365/169 days)


3. iShares MSCI South Korea ETF (EWY) -- Closed
The transactions history was as follows:
04/18/2011 Bought 600 EWY @ $64.17
04/19/2011 Sold 6 EWY May2011 $66.00 Calls @ $1.39
Note: the price of EWY was $65.20 when the calls were sold.
05/27/2011 Sold 6 EWY Jun2011 $67.00 Calls @ $.59
Note: the price of EWY was $64.84 when the calls were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of EWY was $61.91 upon options expiration.
06/21/2011 Sold 6 EWY Jul2011 $65.00 Calls @ $.59
Note: price of EWY stock was $63.00 when these options were sold.
07/16/2011 Jul2011 EWY Options Expired.
Note: the price of EWY was $65.62 upon options expiration.

The resulting overall performance (including commissions) for these iShares MSCI South Korea ETF (EWY) transactions was as follows:
Stock Purchase Cost: $38,510.95
= ($64.17*600+$8.95 commission)

Net Profit:
(a) Options Income: +$1,501.65
= [600*($1.39+$.59+$.59) - 3*$13.45 commissions]
(b) Dividend Income: $0.00
(c) Capital Appreciation (Stock assigned at $65.00): +$87.05
= ($65.00-$64.84)*600 - $8.95 commissions

Total Net Profit (If stock assigned at $65.00): +$1,588.70
= (+$1,501.65 +$0.00 +$87.05)

Absolute Return (Stock assigned at $65.00 at expiration): +4.1%
= +$1,588.70/$38,510.95
Annualized Return: +16.9%
= (+$1,588.70/$38,510.95)*(365/89 days)

Roll Up and Out -- Microsoft Corp.(MSFT)

Tomorrow is July 2011 options expiration Friday. With Microsoft (MSFT) trading at $26.49, the seven MSFT Jul2011 $26.00 calls were in-the-money. The Covered Calls Advisor decided to retain the Microsoft position and roll-up-and-out to the Aug2011 expiration at the $27.00 strike price. The seven Jul2011 $26.00 calls were bought back for $.50 (only $.01 of time value remaining in each call option) and replaced by selling seven out-of-the-money Aug2011 $27.00 strike options at $.56 as follows:
07/14/2011 Buy-to-Close (BTC) 7 MSFT Jul2011 $26.00 Call Options @ $.50
07/14/2011 Sell-to-Open (STO) 7 MSFT Aug2011 $27.00 Call Options @ $.56

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

1. Microsoft Corp.(MSFT) -- Continuation Transaction
The transactions history to date for Microsoft Corp.(MSFT) is as follows:
01/24/2011 Bought 700 MSFT @ $28.15
02/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
01/24/2011 Sell-to-Open(STO) 7 MSFT Feb2011 $29.00 CallS @ $.40
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 7 MSFT Apr2011 $26.00 Calls @ $.31
Note: the price of MSFT was $25.47 today when the options were sold.
04/16/2011 Apr2011 MSFT options expired.
04/26/2011 Sold 7 MSFT May2011 $26.00 Calls @ $.66
Note: The price of MSFT was $26.06 when these call options were sold.
05/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares
05/31/2011 Sold 7 MSFT Jul2011 $26.00 Calls @ $.29
Note: The price of MSFT was $25.05 when these call options were sold.
07/14/2011 Buy-to-Close (BTC) 7 MSFT Jul2011 $26.00 Call Options @ $.50
07/14/2011 Sell-to-Open (STO) 7 MSFT Aug2011 $27.00 Call Options @ $.56
Note: The price of MSFT was $26.52 when these call options were sold.
08/17/2011 Ex-Dividend Date $112.00 = $.16 per share x 700 shares

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: +$1,133.00
= 700*($.40+$.31+$.66+$.29-$.50+$.56) - 5*$14.20 commissions)
(b) Dividend Income: +$336.00 ($.16/share * 700 shares * 3 payments)
(c) Capital Appreciation (If stock price unchanged at $26.52): -$1,149.95
= ($26.52-$28.15)*700 - $8.95 commissions
(c) Capital Appreciation (If assigned at $26.00): -$813.95
= ($27.00-$28.15)*700 - $8.95 commissions

Total Net Profit(If stock price unchanged at $26.52): +$319.05
= (+$1,133.00 +$336.00 -$1,149.95)
Total Net Profit(If stock assigned at $27.00): +$655.05
= (+$1,133.00 +$336.00 -$813.95)

Absolute Return if Stock Unchanged at $26.52: +1.6%
= +$319.05/$19,713.95
Annualized Return If Unchanged (ARIU): +2.8%
= (+$319.05/$19,713.95)*(365/208 days)

Absolute Return if Assigned at $27.00: +3.3%
= +$655.05/$19,713.95
Annualized Return If Assigned (ARIA): +5.8%
= (+$655.05/$19,713.95)*(365/208 days)

Overall Market Meter Rating Remains "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. These nine factors can be categorized into macroeconomic (the first 3 indicators in the chart below), momentum (next 2 indicators in the chart), value (next 3 indicators), and growth (the last indicator). 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 4.11 is identical to the 4.11 of last month and as such remains solidly in Slightly Bullish territory (Note: the range for Slightly Bullish is from 3.5 to 4.5) for establishing covered calls investing positions for the next options expiration month of August 2011. All nine of the factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month.

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 July 2011 options expiration this week, newly established positions for August 2011 expiration will be established in accordance with this guideline.

Your comments or questions regarding this post (or the details related to any of the nine factors used in this model) 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