Returns -- Through September 2012

1. 2012 Year-to-Date Results:

As shown in the "Year-to-Date 2012" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has increased by 12.35% so far in 2012. This is 2.03 percentage points (+12.35% minus 14.38%) below the Russell 3000 index, which is the benchmark against which the Covered Calls Advisor Portfolio is compared.

The financial results were as follows:
CCAP Absolute Return (Jan 1st through September 30th, 2012) = +12.35%
= ($329,903.82-$293,634.14)/$293,634.14
Benchmark Russell 3000(IWV) Absolute Return (Jan 1st through September 30th, 2012) = +14.38%
= ($84.85-$74.18)/$74.18

As a reminder, 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.


2. Prior Years Results:
This Covered Calls Advisor blog began in September 2007. The performance results for 2007 through 2011 is summarized as follows:





This table shows that the Covered Calls Advisor Portfolio has outperformed the Russell 3000 benchmark by a total of 16.94% over the 4.3 years from the start of this blog in Sepember 2007 and the end of 2011. As shown, the corresponding average compound annual return-on-investment outperformance has averaged +3.85% per year. This average is within the Covered Calls Advisor's expected range of +3% to +5% average annual outperformance for long-term results achieved from a well-managed covered calls investing program.

Also 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.

As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating is "NEUTRAL". The corresponding investing strategy is to, on-average, sell 1% 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

Established MetLife Inc. Covered Calls

Today, a new covered calls position was established in MetLife Inc. (ticker symbol MET) with an Oct2012 expiration and at the $33.00 strike price. The transactions are as follows:
09/26/2012 Bought 600 MET shares @ $33.80
09/26/2012 Sold 6 MET Oct2012 $33.00 Call Options @ $1.47
Note: the price of MET shares was $33.81 today when these options were sold.

A possible overall performance result (including commissions) for this MetLife Inc. (MET) covered calls position is as follows:
Stock Purchase Cost: $20,288.95
= ($33.80*600+$8.95 commission)

Net Profit:
(a) Options Income: +$868.55
= ($1.47 X 600 shares) - $13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MET assigned at $33.00 upon expiration): -$488.95
=+($33.00-$33.80)*600 - $8.95 commissions

Total Net Profit (If MET assigned at $33.00 at Oct2012 expiration): +$310.00
= (+$868.55 +$0.00 -$558.55)

Absolute Return (If MET assigned at $33.00 at Oct2012 expiration): +1.5%
= +$310.00/$20,288.95
Annualized Return (If stock assigned): +22.3%
= (+$310.00/$20,288.95)*(365/25 days)

The downside 'breakeven price' at expiration is at $32.33 ($33.80 - $1.47).  Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held 25 days until Oct2012 options expiration) for this MetLife Inc. covered calls position is 70.3%. This compares with a probability of profit of 50.8% for a buy-and-hold of MET over the same time period.

The 'crossover price' at expiration is $34.47 ($33.00 + $1.47).  This is the price above which it would have been more profitable to simply buy-and-hold MET stock until October 20, 2012 (the Oct2012 options expiration date) rather than establishing the covered calls position. The probability of exceeding this crossover price at expiration is 42.1%.

Established Halliburton Co. Covered Calls

Today, a new covered calls position was established in Halliburton Co. (ticker symbol HAL) with an Oct2012 expiration and at the $33.00 strike price. The transactions are as follows:
09/26/2012 Bought 700 HAL shares @ $33.819
09/26/2012 Sold 7 HAL Oct2012 $33.00 Call Options @ $1.65
Note: the price of HAL shares was $33.85 today when these options were sold.

A possible overall performance result (including commissions) for this Halliburton Co. (HAL) covered calls position is as follows:
Stock Purchase Cost: $23,682.25
= ($33.819*700+$8.95 commission)

Net Profit:
(a) Options Income: +$1,140.80
= ($1.65 X 700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HAL assigned at $33.00 upon expiration): -$582.25
=+($33.00-$33.819)*700 - $8.95 commissions

Total Net Profit (If HAL assigned at $33.00 at Oct2012 expiration): +$558.55
= (+$1,140.80 +$0.00 -$582.25)

Absolute Return (If HAL assigned at $33.00 at Oct2012 expiration): +2.4%
= +$558.55/$23,682.25
Annualized Return (If stock assigned): +34.4%
= (+$558.55/$23,682.25)*(365/25 days)

The downside 'breakeven price' at expiration is at $32.17 ($33.82 - $1.65).  Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held 25 days until Oct2012 options expiration) for this Halliburton Co. covered calls position is 73.4%. This compares with a probability of profit of 51.4% for a buy-and-hold of HAL over the same time period.

The 'crossover price' at expiration is $34.65 ($33.00 + $1.65).  This is the price above which it would have been more profitable to simply buy-and-hold HAL stock until October 20, 2012 (the Oct2012 options expiration date) rather than establishing the covered calls position. The probability of exceeding this crossover price at expiration is 40.0%.

Establish Apple Inc. Covered Call

Today, a new covered call position was established in Apple Inc. with an Oct2012 expiration and at the $675 strike price. The transactions and some possible outcomes are as follows:

09/26/2012 Bought 100 AAPL shares @ $667.85
09/26/2012 Sold 1 AAPL Oct2012 $675.00 Call Option @ $16.50
Note: the price of AAPL was $669.50 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: $66,793.95
= ($667.85*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,640.30
= ($16.50*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $667.85): -$8.95
+($667.85-$667.85)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $675.00): +$706.05
+($675.00-$667.85)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at Oct2012 expiration): +$1,631.35
= (+$1,640.30 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $675.00 at Oct2012 expiration): +$2,346.35
= (+$1,640.30 +$0.00 +$706.05)

1. Absolute Return (If stock price unchanged at Oct2012 expiration): +2.4%
= +$1,631.35/$66,793.95
Annualized Return (If stock price unchanged at Oct2012 expiration): +35.7%
= (+$1,631.35/$66,793.95)*(365/25 days);

OR

2. Absolute Return (If stock assigned at $675.00 at Oct2012 expiration): +3.5%
= +$2,346.35/$66,793.95
Annualized Return (If stock assigned): +51.3%
= (+$2,346.35/$66,793.95)*(365/25 days)

September 2012 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained eleven covered calls positions with September 2012 expirations. A summary of the results were as follows:

- Two positions (iShares MSCI China ETF and iShares MSCI South Korea ETF) were in-the-money just prior to options expiration this past Friday and the Covered Calls Advisor decided to roll-out to Oct2012 covered calls positions.  The details of these roll-out transactions and their financial results were posted on this blog on Friday.

- The remaining nine positions (Bank of America Corp., General Motors, Market Vectors Russia ETF, McDermott International, Morgan Stanley, Mylan Inc., Occidental Petroleum, United Continental Holdings, and VALE SA ADR) were closed out upon Sep2012 options expiration. The options expired and the accompanying equities were assigned (i.e. equities called away) at their respective strike prices.  
With the cash available from the closing of these positions, the Covered Calls Advisor will establish new positions this week and will post them on this blog the same day that they occur.

The annualized return-on-investment financial results for these nine closed positions are:
Bank of America Corp. = +39.7%
General Motors Co. = +42.3%
Market Vectors Russia ETF = +38.1%
McDermott International Inc. = +62.8%
Morgan Stanley = +52.5%
Mylan Inc. = +11.8%
Occidental Petroleum Corp. = +21.4%
United Continental Holdings Inc. = +40.5%
VALE SA ADR = +24.8%

The detailed transactions history and results for these nine positions are as follows:

1. Bank of America Corp. (BAC) -- Closed
The transactions history is as follows:
07/30/2012 Bought 1,000 BAC shares @ $7.29
08/01/2012 Sold 10 BAC Aug2012 $7.00 Call Options @ $.44
Note: the price of BAC was $7.34 today when these options were sold.
08/17/2012 Bought-to-Close 10 BAC Aug2012 $7.00 call options @ $1.01
Note: BAC was trading at $8.01 when this transaction occurred.
08/20/2012 Sold 10 BAC Sep2012 $8.00 Call Options @ $.30
Note: BAC was trading at $8.05 when this transaction occurred.
09/21/2012 Sep012 $8.00 options expired and 1,000 BAC shares assigned (called away)at $8.00
Note: the price of BAC stock was $9.11 upon options expiration.

The overall performance result (including commissions) for this Bank of America (BAC) position was as follows:
Stock Purchase Cost: $7,281.05
= ($7.29*1,000+$8.95 commission)

Net Profit:
(a) Options Income: -$272.90
= ($.44-$1.01+$.30)*1,000 shares - 2*$16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BAC assigned at $8.00 upon expiration): +$701.05
=+($8.00-$7.29)*1,000 - $8.95 commissions

Total Net Profit (BAC assigned at $8.00 at Sep2012 expiration): +$428.15
= (-$272.90 +$0.00 +$701.05)

Absolute Return (BAC assigned at $8.00 at Sep2012 expiration): +5.9%
= +$428.15/$7,281.05
Annualized Return : +39.7%
= (+$428.15/$7,281.05)*(365/54 days)


2. General Motors Co. (GM) -- Closed
The transactions are as follows: 09/04/2012 Bought 500 GM shares @ $21.20
09/04/2012 Sold 5 GM Sep2012 $21.00 Call Options @ $.71
Note: the price of GM shares was $21.24 today when these options were sold.
09/21/2012 Sep012 $21.00 options expired and 500 GM shares assigned (called away)at $21.00
Note: the price of GM stock was $24.80 upon options expiration.

The overall performance result (including commissions) for this General Motors Co. (GM) covered calls position was as follows:
Stock Purchase Cost: $10,608.95
= ($21.20*500+$8.95 commission)

Net Profit:
(a) Options Income: +$342.30
= ($.71 X 500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (GM assigned at $21.00 upon expiration): -$108.95
=+($21.00-$21.20)*500 - $8.95 commissions

Total Net Profit (GM assigned at $21.00 at Sep2012 expiration): +$233.35
= (+$342.30 +$0.00 -$108.95)

Absolute Return (If GM assigned at $21.00 at Sep2012 expiration): +2.2%
= +$233.35/$10,608.95
Annualized Return: +42.3%
= (+$233.35/$10,608.95)*(365/19 days)


3. Market Vectors Russia ETF -- Closed
The transactions history for this Market Vectors Russia ETF (RSX) covered calls position is as follows: 07/30/2012 Bought 600 RSX shares @ $26.59
08/01/2012 Sold 6 RSX Aug2012 $27.00 Call Options @ $.55
Note: the price of RSX was $26.70 today when these options were sold.
08/17/2012 Bought-to-Close 6 RSX Aug2012 $27.00 Calls at $.85
Note: this was done with the price of RSX at $27.84
08/17/2012 Sold-to-Open 6 RSX Sep2012 $27.00 call options at $1.45
Note: the price of RSX was $27.88 when these Sep2012 call options were sold.
09/21/2012 Sep012 $27.00 options expired and 600 RSX shares assigned (called away)at $27.00
Note: the price of RSX stock was $29.73 upon options expiration.

The overall performance result (including commissions) for this Market Vectors Russia ETF (RSX) covered calls position is as follows:
Stock Purchase Cost: $15,962.95
= ($26.59*600+$8.95 commission)

Net Profit:
(a) Options Income: +$663.10
= ($.55-$.85+$1.45)*600 shares - 2*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (RSX assigned at $27.00): +$237.05
= ($27.00-$26.59)*600 - $8.95 commissions

Total Net Profit(RSX assigned at $27.00): +$900.15
= (+$663.10 +$0.00 +$237.05)

Absolute Return (RSX assigned at $27.00): +5.6%
= +$900.15/$15,962.95
Annualized Return: +38.1%
= (+$900.15/$15,962.95)*(365/54 days)


4. McDermott International Inc. -- Closed
The transactions history for this MDR position is as follows:
08/01/2012 Bought 600 MDR @ $11.56
08/01/2012 Sold 6 MDR Aug2012 $12.00 Calls @ $.55
08/17/2012 MDR Aug2012 $12.00 Call Options expired.
Note: the price of MDR stock was $11.75 upon options expiration.
08/20/2012 Sold 6 MDR Sep2012 $12.00 Calls @ $.45
Note: the price of MDR was $11.76 when these options were sold.
09/21/2012 Sep012 $12.00 options expired and 600 MDR shares assigned (called away)at $12.00
Note: the price of MDR stock was $12.70 upon options expiration.

The overall performance result (including commissions) for this McDermott position was as follows: Stock Purchase Cost: $9,256.95
= ($11.56*600+$8.95 commission)
Net Profit:
(a) Options Income: +$573.10
= 600 shares*($.55+$.45) - 2*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (MDR assigned at $12.00): +$255.05
= ($12.00-$11.56)*600 - $8.95 commissions

Total Net Profit (MDR assigned at $12.00 upon Sep2012 expiration): +$828.15
= (+$573.10 +$0.00 +$255.05)

Absolute Return (MDR assigned at $12.00): +8.9%
= +$828.15/$9,256.95
Annualized Return: +62.8%
= (+$828.15/$9,256.95)*(365/52 days)


5. Morgan Stanley -- Closed
The transactions history for this Morgan Stanley (MS) covered calls position is as follows:
07/31/2012 Bought 600 MS @ $13.63 07/31/2012
Sold 6 MS Aug2012 $14.00 Calls @ $.35
08/17/2012 Bought-to-Close 6 MS Aug2012 $14.00 Calls at $.58
Note: this was done with the price of MS at $14.57
08/17/2012 Sold-to-Open 6 MS Sep2012 $14.00 call options at $.96
09/21/2012 Sep012 $14.00 options expired and 600 MS shares assigned (called away)at $14.00
Note: the price of MS stock was $17.08 upon options expiration.

The overall performance result (including commissions) for this Morgan Stanley covered calls position was as follows: Stock Purchase Cost: $8,186.95
= ($13.63*600+$8.95 commission)

Net Profit:
(a) Options Income: +$411.10
= ($.35-$.58+$.96)*600 shares - 2*$13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (MS assigned at $14.00): +$213.05
= ($14.00-$13.63)*600 - $8.95 commissions

Total Net Profit (MS assigned at $14.00 at Sep2012 options expiration): +$624.15
= (+$411.10 +$0.00 +$213.05)

Absolute Return (MS assigned at $14.00): +7.6%
= +$624.15/$8,186.95
Annualized Return: +52.5%
= (+$624.15/$8,186.95)*(365/53 days)


6. Mylan Inc. -- Closed
The transactions history for this Mylan Inc.(MYL) covered calls position is as follows: 03/08/2012 Bought 500 Mylan Inc. Shares @ $22.51
03/08/2012 Sold 5 MYL Mar2012 $23.00 Calls @ $.26
Note: the price of Mylan was $22.75 today when the calls were sold.
03/18/2012 Mar2012 options expired.
03/19/2012 Sold 5 MYL Apr2012 $23.00 Calls @ $.47
Note: the price of MYL was $22.73 when these options were sold.
04/22/2012 MYL May2012 Call options expired.
04/25/2012 Sold 5 MYL May2012 $23.00 Calls at $.30
Note: the price of MYL was $22.20 when these call options were sold.
05/19/2012 MYL Jun2012 Call options expired.
06/04/2012 Sold 5 MYL Jun2012 $21.00 Calls at $.28
06/15/2012 Bought-to-Close 5 Jun2012 $21.00 call options at $.20
06/15/2012 Sold 5 MYL Jul2012 $22.00 call options at $.31
07/18/2012 Bought-to-Close 5 MYL Jul2012 $22.00 call options at $.60
07/18/2012 Sell-to-Open 5 MYL Aug2012 $22.00 call options at $.96
Note: the price of MYL was $22.57 when this credit spread roll-out transaction was made.
08/17/2012 Bought-to-Close 5 MYL Aug2012 $22.00 Calls at $1.53
Note: this was done with the price of MYL at $23.52
08/17/2012 Sold-to-Open 5 MYL Sep2012 $23.00 call options at $.88
09/21/2012 Sep012 $23.00 options expired and 500 MYL shares assigned (called away)at $23.00
Note: the price of MYL stock was $24.55 upon options expiration.

The result from this position is as follows:
Stock Purchase Cost: $11,263.95
= ($22.51*500+$8.95 commission)

Net Profit:
(a) Options Income: +$486.60
= ($.26+$.47+$.30+$.28-$.20+$.31-$.60+$.96-$1.53+$.88)*500 shares) - 7*$11.20 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (MYL price above $23.00 at Sep2012 options expiration): +$236.05
= ($23.00-$22.51)*500 - $8.95 commissions

Total Net Profit(MYL stock assigned at $23.00 at Sep2012 options expiration): +$722.65 = (+$486.60 +$0.00 +$236.05)

Absolute Return (Mylan stock assigned at $23.00 at Sep2012 options expiration): +6.4%
= +$722.65/$11,263.95
Annualized Return: +11.8%
= (+$722.65/$11,263.95)*(365/198 days)


7. Occidental Petroleum Corp. -- Closed
The transactions are as follows:
08/23/2012 Bought 200 OXY shares @ $87.80
08/23/2012 Sold 2 OXY Sep2012 $85.00 Call Options @ $3.95
09/06/2012 Ex-dividend of $.54 per share
09/21/2012 Sep012 $85.00 options expired and 200 OXY shares assigned (called away)at $85.00
Note: the price of OXY stock was $87.39 upon options expiration.

The overall performance result (including commissions) for this Occidental Petroleum Corp. (OXY) covered calls position was as follows: Stock Purchase Cost: $17,568.95
= ($87.80*200+$8.95 commission)

Net Profit:
(a) Options Income: +$779.55
= ($3.95*200 shares) - $10.45 commissions
(b) Dividend Income (OXY stock assigned at Sep2012 expiration): +$108.00
= ($.54 dividend per share x 200 shares); or
(c) Capital Appreciation (If stock assigned at $85.00): -$568.95
+($85.00-$87.80)*200 - $8.95 commissions

Total Net Profit (OXY stock assigned at $85.00 at Sep2012 expiration): +$318.60
= (+$779.55 +$108.00 -$568.95); or

Absolute Return (OXY stock assigned at $85.00 at Sep2012 expiration): +1.8% = +$318.60/$17,568.95
Annualized Return: +21.4%
= (+$318.60/$17,568.95)*(365/31 days);


8. United Continental Holdings Inc. (UAL) -- Closed
The transaction was as follows:
08/28/2012 Sold 7 United Continental Holdings Inc.(UAL) Sep2012 $18.00 Put Options @ $.52
Note: the price of UAL was $18.75 today when these Puts were sold.
09/21/2012 Sep012 $18.00 options expired
Note: the price of UAL stock was $20.02 upon options expiration.

The overall performance result (including commissions) for this UAL transaction was as follows: 100% Cash-Secured Cost Basis: $12,600.00 = $18.00*700

Net Profit:
(a) Options Income: +$349.80
= ($.52*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (UAL above $18.00 at Sep2012 expiration): +$0.00
= ($18.00-$18.00)*700

Total Net Profit (UAL above $18.00 at Sep2012 options expiration): +$349.80 = (+$349.80 +$0.00 +$0.00)

Absolute Return (UAL above $18.00 at Sep2012 options expiration and Put options thus expire worthless): +2.8%
= +$349.80/$12,600.00
Annualized Return: +40.5%
= (+$349.80/$12,600.00)*(365/25 days)


9. VALE SA ADR -- Closed
The transactions are as follows:
08/20/2012 Bought 700 VALE shares @ $17.66
08/20/2012 Sold 7 VALE Sep2012 $17.00 Call Options @ $1.09
Note: the price of Vale shares was $17.71 today when these options were sold.
09/21/2012 Sep012 $17.00 options expired and 700 VALE shares assigned (called away)at $17.00
Note: the price of VALE stock was $17.00 upon options expiration.

The overall performance result (including commissions) for this Vale SA ADR (VALE) covered calls position was as follows: Stock Purchase Cost: $12,370.95
= ($17.66*700+$8.95 commission)

Net Profit:
(a) Options Income: +$748.80 = ($1.09 X 700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (VALE assigned at $17.00 upon expiration): -$470.95
=+($17.00-$17.66)*700 - $8.95 commissions

Total Net Profit (VALE assigned at $17.00 at Sep2012 expiration): +$277.85
= (+$748.80 +$0.00 -$470.95)

Absolute Return (VALE assigned at $17.00 at Sep2012 expiration): +2.2%
= +$277.85/$12,370.95
Annualized Return: +24.8%
= (+$277.85/$12,370.95)*(365/33 days)

Roll-Outs -- iShares MSCI China ETF and iShares MSCI South Korea ETF

The Covered Calls Advisor decided to retain the existing covered calls positions in iShares MSCI China ETF (ticker symbol FXI) and iShares MSCI South Korea ETF (ticker symbol EWY) by rolling out to the Oct2012 expiration.  The advantage of waiting until today (expiration Friday) to roll these positions was to extract almost all of the extrinsic value from the short options before establishing the position for the next expiration month.

1. iShares MSCI China ETF (FXI) -- Roll Out
The Sep2012 options at the $34.00 strike price were rolled out to the same $34.00 strike price for Oct2012 with the following credit spread transaction:
09/21/2012 Bought-to-Close 10 FXI Sep2012 $34.00 Call Options at $.90
09/21/2012 Sell-to-Open 10 FXI Oct2012 $34.00 Call Options at $1.35
Note: the price of FXI was $34.88 when this transaction was made.

The transaction history so far in this iShares MSCI China ETF (FXI) position is as follows:
07/30/2012 Bought 1,000 FXI shares @ $34.09
07/30/2012 Sold 10 FXI Aug2012 $34.00 Call Options @ $.80
08/17/2012 Bought-to-Close 10 FXI Aug2012 $34.00 Calls at $.42
08/17/2012 Sold-to-Open 10 FXI August 24th, 2012 $34.50 call options at $.31
Note: the price of FXI was $34.41 today when this roll-up-and-out transaction occurred.
08/24/2012 10 FXI Aug 24th $34.50 call options expired.
Note: the price of FXI was $34.01 today when these options expired.
08/28/2012 Sold-to-Open 10 FXI Sep2012 $34.00 Calls @ $.56
Note: the price of FXI was $33.62 today when this transaction was made.
09/21/2012 Bought-to-Close 10 FXI Sep2012 $34.00 Call Options at $.90
09/21/2012 Sell-to-Open 10 FXI Oct2012 $34.00 Call Options at $1.35
Note: the price of FXI was $34.88 when this transaction was made.

A possible overall performance result (including commissions) for this iShares MSCI China ETF (FXI) covered calls position is as follows:
Stock Purchase Cost: $34,098.95 = ($34.09*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$1,535.25 =($.80-$.42+$.31+$.56-$.90+$1.35)*1,000 shares - 4*$16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI assigned at $34.00 upon expiration): -$98.95
=($34.00-$34.09)*1,000 - $8.95 commissions

Total Net Profit (If FXI assigned at $34.00 at Oct2012 expiration): +$1,535.25
= (+$1,634.20 +$0.00 -$98.95)

Absolute Return (If FXI assigned at $34.00 at Oct2012 options expiration): +4.5%
= +$1,535.25/$34,098.95
Annualized Return (If stock assigned): +20.0%
= (+$1,535.25/$34,098.95)*(365/82 days)

2. iShares MSCI South Korea ETF (EWY) -- Roll Up and Out
The Sep2012 options at the $57.00 strike price were rolled-up-and-out to the $59.00 strike price for Oct2012 with the following credit spread transaction:
09/21/2012 Bought-to-Close 5 EWY Sep2012 $57.00 Call Options at $2.90
09/21/2012 Sell-to-Open 5 EWY Oct2012 $59.00 Call Options at $1.87
Note: the price of EWY was $59.85 when this transaction was made.

The transaction history so far in this iShares MSCI South Korea ETF (EWY) position is as follows:
07/30/2012 Bought 500 EWY shares @ $54.51 08/01/2012
Sold 5 EWY Aug2012 $56.00 Call Options @ $1.40
Note: the price of EWY was $56.40 today when the options were sold.
08/17/2012 Bought-to-Close 5 EWY Aug2012 $56.00 Calls at $1.68
Note: this was done with the price of EWY at $57.67
08/17/2012 Sold-to-Open 5 EWY Sep2012 $57.00 call options at $2.03
09/21/2012 Bought-to-Close 5 EWY Sep2012 $57.00 Call Options at $2.90
09/21/2012 Sell-to-Open 5 EWY Oct2012 $59.00 Call Options at $1.87
Note: the price of EWY was $59.85 when this transaction was made.

A possible overall performance result (including commissions) is as follows:
Stock Purchase Cost: $27,263.95
= ($54.51*500+$8.95 commission)

Net Profit:
(a) Options Income: +$321.90
= ($1.40-$1.68+$2.03-$2.90+$1.87)*500 shares - 3*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWY assigned at $59.00): +$2,236.05
= ($59.00-$54.51)*500 - $8.95 commissions

Total Net Profit(If EWY assigned at $59.00): +$2,557.95
= (+$321.90 +$0.00 +$2,236.05)

Absolute Return if Assigned at $59.00: +9.4%
= +$2,557.95/$27,263.95
Annualized Return If Assigned (ARIA): +41.8%
= (+$2,557.95/$27,263.95)*(365/82 days)

Overall Market Meter Changes to "Neutral" from "Slightly Bullish"

Each month during options expiration week, the Covered Calls Advisor recalculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. This month, the Overall Market Meter rating changes from Slightly Bullish to Neutral.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below);
- momentum (next two indicators in the chart);
- value (next three indicators); and
- growth (the last indicator).

The current Market Meter Average of 3.50 (see blue line in chart above) is below the 3.75 average of last month. The 3.50 is a Neutral rating (range from 2.51 to 3.50).  Six of the eight factors used to determine the Overall Market Meter rating were unchanged from the prior analysis last month. The two factors that changed were: (1) Interest Rates changed from Neutral to Slightly Bearish; and (2) P/E Ratios changed from Neutral to Slightly Bearish.

This is the first change in the Overall Market Meter rating since January 18th, 2012.  During these past 8 months that the rating was Slightly Bullish, the benchmark Russell 3000 index increased by 13.4%.

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the nearest expiration month." So with the September 2012 options expiration, newly established positions for October 2012 expiration will be established in accordance with this guideline.

Your comments or questions regarding this post (or the details related to any of the eight 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 to All and Godspeed,
Jeff

Established General Motors Co. Covered Calls

Today, a new covered calls position was established in General Motors Co. (Ticker Symbol GM) with a Sep2012 expiration and at the $21.00 strike price. The transactions are as follows:
09/04/2012 Bought 500 GM shares @ $21.20
09/04/2012 Sold 5 GM Sep2012 $21.00 Call Options @ $.71
Note: the price of GM shares was $21.24 today when these options were sold.

A possible overall performance result (including commissions) for this General Motors Co. (GM) covered calls position is as follows:
Stock Purchase Cost: $10,608.95
= ($21.20*500+$8.95 commission)

Net Profit:
(a) Options Income: +$342.30
= ($.71 X 500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GM assigned at $21.00 upon expiration): -$108.95
=+($21.00-$21.20)*500 - $8.95 commissions

Total Net Profit (If GM assigned at $21.00 at Sep2012 expiration): +$233.35
= (+$342.30 +$0.00 -$108.95)

Absolute Return (If GM assigned at $21.00 at Sep2012 expiration): +2.2%
= +$233.35/$10,608.95
Annualized Return (If stock assigned): +42.3%
= (+$233.35/$10,608.95)*(365/19 days)

The downside 'breakeven price' at expiration is at $20.49 ($21.20 - $.71).  Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held 18 days until Sep2012 options expiration) for this General Motors covered calls position is 70.1%. This compares with a probability of profit of 51.4% for a buy-and-hold of GM over the same time period.

The 'crossover price' at expiration is $21.79 ($21.00 + $.71).  This is the price above which it would have been more profitable to simply buy-and-hold GM stock until September 22, 2012 (the Sep2012 options expiration date) rather than establishing the covered calls position. The probability of exceeding this crossover price at expiration is 35.9%.

Returns -- Through August 2012

1. 2012 Year-to-Date Results:

As shown in the "Year-to-Date 2012" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has increased by 9.38% so far in 2012. This is 2.62 percentage points (+9.38% minus 12.00%) below the Russell 3000 index, which is the benchmark against which the Covered Calls Advisor Portfolio is compared.

The financial results were as follows:
CCAP Absolute Return (Jan 1st through August 31st, 2012) = +9.38%
= ($316,072.68-$293,634.14)/$293,634.14
Benchmark Russell 3000(IWV) Absolute Return (Jan 1st through August 31st, 2012) = +12.00%
= ($83.08-$74.18)/$74.18

As a reminder, 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.


2. Prior Years Results:
This Covered Calls Advisor blog began in September 2007. The performance results for 2007 through 2011 is summarized as follows:





This table shows that the Covered Calls Advisor Portfolio has outperformed the Russell 3000 benchmark by a total of 16.94% over the 4.3 years from the start of this blog in Sepember 2007 and the end of 2011. As shown, the corresponding average compound annual return-on-investment outperformance has averaged +3.85% per year. This average is within the Covered Calls Advisor's expected range of +3% to +5% average annual outperformance for long-term results achieved from a well-managed covered calls investing program.

Also 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.

As shown in the right sidebar near the top of this page, the Covered Calls Advisor's current Overall Market Meter rating is "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