The Covered Calls Advisor Portfolio (CCAP) contained a total of thirteen covered calls positions with November 2011 expirations, with the following results:
- Eleven positions in the CCAP (Apple Inc., Citigroup, Halliburton, iShares MSCI Emerging Markets ETF, iShares MSCI China ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Morgan Stanley, Mylan Inc., Peabody Energy Corp., and Valero Energy) expired out-of-the-money. Decisions will be made to either sell these equities, or to keep them and sell calls to establish December 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.
- Two positions (Bunge Ltd. and International Paper Co.) were in-the-money and the stocks were assigned (i.e. stock called away) upon option expiration last Friday. The detailed history and return-on-investment results for these closed positions is as follows:
1. Bunge Ltd.(BG) -- Closed
The transaction history is as follows:
10/26/2011 Sold 3 Bunge Ltd.(BG) Nov2011 $60.00 Put Options @ $3.10
Note: the price of BG stock was $58.62 today when these puts were sold.
11/19/2011 3 BG Nov2011 $60.00 Put options expired.
Note: the price of BG was $60.83 upon close on November options expiration Friday.
The performance result(including commissions) for this Bunge Ltd.(BG)transaction was as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $60.00*300
Net Profit:
(a) Options Income: +$918.80
= ($3.10*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BG stock above $60.00 at Nov2011 expiration): +$0.00
= ($60.00-$60.00) -$0.00 commissions
Total Net Profit(Stock price above $60.00 at Nov2011 options expiration): +$918.80
= (+$918.80 +$0.00 +$0.00)
Absolute Return (Stock price above $60.00 at Nov2011 options expiration and put options thus expire worthless): +5.1%
= +$918.80/$18,000.00
Annualized Return: +77.6%
= (+$918.80/$18,000.00)*(365/24 days)
2. International Paper Co.(IP) -- Continuation Transaction
The transactions history is as follows:
09/19/2011 Bought 400 shares IP at $26.978
09/19/2011 Sold 4 IP Oct2011 $28 Calls @ $1.18
10/22/2011 Oct2011 options expired.
Note: the IP price was $25.93 at options expiration.
10/24/2011 Sold 4 IP Nov2011 $27.00 Call Options @ $.73
Note: the price of IP was $26.25 when the options were sold.
11/11/2011 Buy-to-Close 4 Nov2011 $27.00 Calls at $1.86
11/11/2011 Sell-to-Open 5 Dec2011 $28.00 Calls at $1.80
Note: the price of IP was $28.84 when this credit spread was transacted.
11/14/2011 Ex-Div $105.00 = $.2625 * 400 shares
11/19/2011 Nov2011 options expired.
Note: the price of IP was $28.02 at options expiration.
The overrall performance result(including commissions) for these International Paper Co.(IP) transactions was as follows:
Stock Purchase Cost: $10,800.15
= ($26.978*400+$8.95 commission)
Net Profit:
(a) Options Income: +$704.15
= (400*($1.18+$.73-$1.86+$1.80) - 3*$11.95 commissions)
(b) Dividend Income: +$105.00 = $.2625 * 400 shares
(c) Capital Appreciation (Stock assigned at $28.00): +$399.85
= ($28.00-$26.978)*400 - $8.95 commissions
Total Net Profit (Stock assigned at $28.00): +$1,209.00
= (+$704.15 +$105.00 +$399.85)
Absolute Return (Stock assigned at $28.00 at expiration): +11.2%
= +$1,209.00/$10,800.15
Annualized Return: +45.9%
= (+$1,209.00/$10,800.15)*(365/89 days)
This International Paper position demonstrates the triple-income potential of covered calls investing; by obtaining profit from all three potential profit sources available to covered calls investors, namely: (1) options income from selling calls; (2) dividend income; and (3) capital appreciation from an increase in the price of the underlying stock. Moreover, in this particular case, a total 11.2% absolute return was achieved from this 3-month investment (a 45.9% annualized return-on-investment) -- a very attractive result for an investment in a company in the low-growth Paper and Packaging industry.
