Purchased ProShares Short S&P 500 ETF

Yesterday, a long position in ProShares Short S&P 500 (ticker symbol SH) was established with the purchase of 1,000 shares. The transaction was:
11/21/2012 Bought 1,000 SH shares @ $35.10
Stock Purchase Cost: $35,108.95
= $35.10 x 1,000 shares + $8.95 commissions

This long position in an inverse ETF provides an added hedge against the Covered Calls Advisor Portfolio's long positions. This position will benefit the overall portfolio performance (relative to the Russell 3000 benchmark) if the market declines since SH will increase in direct proportion to any decline in the S&P 500 while this position is held.

With this position, this advisor's overall portfolio exposure is now approximately 65% long, 15% short, and 20% cash.

Closed -- Foot Locker Inc. and Fusion-io Inc. Covered Calls

1. Foot Locker Inc. -- Closed
Today, a decision was made to close the Foot Locker (ticker symbol FL) position.
The transaction history was:
10/22/2012 Bought 300 FL shares @ $35.48
10/22/2012 Sold 3 FL Nov2012 $35.00 Call Options @ $1.45
Note: the price of FL shares was $35.55 today when these options were sold.
11/16/2012 FL Nov2012 options expired
11/19/2012 Sold 3 FL Dec2012 $33.00 Call Options @ $1.45
11/21/2012 Bought-to-Close 3 FL Dec2012 $33.00 Call Options @ $1.55
11/21/2012 Sold 300 FL shares @ $33.96

The overall performance result (including commissions) for this Foot Locker Inc. (FL) covered calls position was as follows:
Stock Purchase Cost: $10,635.05
= ($35.48*300+$8.95 commission)

Net Profit:
(a) Options Income: +$382.60
= ($1.45+$1.45-$1.55) X 300 shares - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$464.95
=+($33.96-$35.48)*300 - $8.95 commissions

Total Net Profit: -$82.35
= (+$382.60 +$0.00 -$464.95)

Absolute Return: -0.8%
= -$82.35/$10,635.05
Annualized Return (If stock assigned):  -9.4%
= (-$82.35/$10,635.05)*(365/30 days)


2.  Fusion-io Inc. -- Closed 
The Nov2012 covered calls position in Fusion-io Inc. (ticker symbol FIO) expired last Friday.  Today, a decision was made to close the position by selling the 300 shares in FIO.  The transaction history was as follows:
10/19/2012 Bought 300 FIO shares @ $27.55
10/19/2012 Sold 3 FIO Nov2012 $29.00 Call Options @ $2.55
Note: the price of FIO was $27.63 today when these options were sold.
11/16/2012 FIO Nov2012 options expired
11/21/2012 Sold 300 FIO shares @ $23.10

The overall performance result (including commissions) is as follows:
Stock Purchase Cost: $8,273.95
= ($27.55*300+$8.95 commission)

Net Profit:
(a) Options Income: +$753.80 = ($2.55*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FIO sold at $23.10): -$1,343.95
=+($23.10-$27.55)*300 - $8.95 commissions

Total Net Profit: -$590.15
= (+$753.80 +$0.00 -$1,343.95

Absolute Return: -7.1%
= -$590.15/$8,273.95
Annualized Return: -78.9%
= (-$590.15/$8,273.95)*(365/33 days)

Continuation Transactions -- Eight Covered Calls Positions

Friday was options expiration for November 2012. Today, December 2012 covered calls positions were established by selling calls against long positions in eight existing equities in the Covered Calls Advisor Portfolio (CCAP). The detailed transactions history for these positions are shown below. The overall return-on-investment results for each position will be calculated and presented in the future when the positions are closed.

1. Canadian National Resources LTD -- Continuation
The transactions are as follows:
10/25/2012 Bought 600 CNQ shares @ $30.28
10/25/2012 Sold 6 CNQ Nov2012 $31.00 Call Options @ $.75
Note: the price of CNQ shares was $30.37 today when these options were sold.
11/16/2012 CNQ Nov2012 options expired
11/19/2012 Sold 6 CNQ Dec2012 $27.00 Call Options @ $1.45

2. Citigroup Inc. -- Continuation
The transactions to date are as follows:
10/23/2012 Sold 4 Citigroup, Inc. (symbol C) Nov2012 $36.00 Put Options @ $.82
Note: the price of Citi stock was $36.97 today when these Puts were sold.
11/16/2012 C Nov2012 options expired
11/19/2012 Sold 4 C Dec2012 $35.00 Call Options @ $2.07

3. Foot Locker Inc. -- Continuation
The transactions are as follows:
10/22/2012 Bought 300 FL shares @ $35.48
10/22/2012 Sold 3 FL Nov2012 $35.00 Call Options @ $1.45
Note: the price of FL shares was $35.55 today when these options were sold.
11/16/2012 FL Nov2012 options expired
11/19/2012 Sold 3 FL Dec2012 $33.00 Call Options @ $1.45

4. SPDR Gold Shares -- Continuation
The transactions are as follows:
10/19/2012 Sold 1 SPDR Gold Shares (GLD) Nov2012 $170.00 Put Options @ $4.40
Note: the price of GLD was $167.00 today when these Puts were sold.
11/16/2012 GLD Nov2012 options expired
11/19/2012 Sold 1 GLD Dec2012 $169.00 Call Options @ $1.86

5. iShares MSCI China ETF -- Continuation
The transactions are as follows:
10/19/2012 Bought 800 FXI shares @ $37.11 10/19/2012 Sold 8 FXI Nov2012 $36.00 Call Options @ $1.52
Note: the price of FXI was $37.14 today when the options were sold.
11/16/2012 FXI Nov2012 options expired
11/19/2012 Sold 8 FXI Dec2012 $36.00 Call Options @ $1.05

6. iShares MSCI Emerging Markets ETF -- Continuation
The transactions are as follows:
10/23/2012 Bought 700 EEM shares @ $41.10
10/23/2012 Sold 7 EEM Nov2012 $41.00 Call Options @ $.98
Note: the price of EEM shares was $41.14 today when these options were sold.
11/16/2012 EEM Nov2012 options expired
11/19/2012 Sold 7 EEM Dec2012 $40.00 Call Options @ $1.40

7. iShares MSCI South Korea ETF -- Continuation
The transactions are 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.
10/20/2012 EWY Oct2012 call options expired
Note: price of EWY was $57.43 at the close on Oct2012 options expiration Friday.
10/22/2012 Sell-to-Open 5 EWY Nov2012 $58.00 Call Options at $1.56
Note: the price of EWY was $58.34 when this transaction was made.
11/16/2012 EWY Nov2012 options expired
11/19/2012 Sold 5 EWY Dec2012 $57.00 Call Options @ $1.76

8. Potash Corp. of Saskatchewan Inc. -- Continuation
10/19/2012 Sold 3 Potash Corp.(POT) Nov2012 $40.00 Put Options @ $.88
Note: the price of Potash stock was $40.69 today when these Puts were sold.
11/16/2012 POT Nov2012 options expired
11/19/2012 Sold 3 POT Dec2012 $37.50 Call Options @ $1.18

November 2012 Expiration Results

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

- Ten positions (Canadian Natural Resources LTD, Citigroup Inc., Foot Locker Inc., Fusion-io Inc., SPDR Gold Shares, iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, iShares MSCI South Korea ETF, MetLife Inc., and Potash Corp.) had their options expire yesterday since the stock prices closed below the Nov options' strike prices.  So now, the Covered Calls Advisor Portfolio (CCAP) is long shares in these ten equities.  A decision will be made during this week to either sell these shares or to re-establish covered calls positions by selling Dec2012 call options.  When these decisions are made and the accompanying transactions are completed, a post will be made on this blog on the same day with the details.

- The other two positions (Mylan Inc. and United Continental Holdings Inc.) were closed out upon Nov2012 options expiration since the stock closed above the strike prices.  Hence, the options expired and the accompanying equities were assigned at their respective strike prices.  
The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls positions with Dec2012 options expirations are established (possibly later this week).  These transactions will be posted on this blog the same day they occur.

The annualized return-on-investment financial results for these two closed positions are:
Mylan Inc. = +45.5%
United Continental Holdings Inc. = +37.1%

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

1. Mylan Inc. (Ticker Symbol MYL) -- Closed
The transactions history was as follows:
10/24/2012 Bought 1,000 MYL shares @ $23.88
10/25/2012 Sold 10 MYL Nov2012 $24.00 Call Options @ $.65
Note: the price of MYL shares was $24.36 today when these options were sold.
11/16/2012 MYL Nov2012 options expired
Note: the price of MYL stock was $25.45 upon Nov2012 options expiration.

The overall performance result (including commissions) for this Mylan Inc. (MYL) covered calls position was as follows:
Stock Purchase Cost: $23,888.95 = ($23.88*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$633.55 = ($.65 X 1,000 shares) - $16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (MYL assigned at $24.00 upon Nov2012 expiration): +$111.05
=+($24.00-$23.88)*1,000 - $8.95 commissions

Total Net Profit (MYL assigned at $24.00 at Nov2012 expiration): +$744.60
= (+$633.55 +$0.00 +$111.05)

Absolute Return (MYL assigned at $24.00 at Nov2012 expiration): +3.1%
= +$744.60/$23,888.95
Annualized Return (MYL stock assigned): +45.5%
= (+$744.60/$23,888.95)*(365/25 days)


2. United Continental Holdings Inc. (Ticker Symbol UAL) -- Closed
The transactions history was as follows:
10/25/2012 Sold 10 United Continental Holdings Inc.(UAL) Nov2012 $19.00 Put Options @ $.48
Note: the price of UAL was $19.85 today when these Puts were sold.
11/16/2012 UAL Nov2012 options expired
Note: the price of UAL stock was $19.50 upon Nov2012 options expiration.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the results shown below reflect the fact that this position was established using 100% cash securitization for the ten Put options sold.  

The overall performance result(including commissions) for this UAL transaction was as follows:
100% Cash-Secured Cost Basis: $19,000.00 = $19.00*1,000

Net Profit:
(a) Options Income: +$463.55 = ($.48*1,000 shares) - $16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (UAL above $19.00 strike price at Nov2012 expiration): +$0.00 = ($19.00-$19.00)*1,000  

Total Net Profit (UAL stock price was above $19.00 strike price at Nov2012 options expiration): +$463.55
= (+$463.55 +$0.00 +$0.00)  

Absolute Return (UAL stock above $19.00 at Nov2012 options expiration and Put options thus expire worthless): +2.4%
= +$463.55/$19,000.00
Annualized Return (UAL stock price above $19.00 at expiration): +37.1%
= (+$463.55/$19,000.00)*(365/24 days)

Country Value Rankings

About once a quarter, the Covered Calls Advisor calculates the nine factors used to determine the current "Country Value Rankings" for 22 countries. Today's results (shown in the table below), provides a value-oriented and objective framework that assists this advisor to make decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's Portfolio.

A comprehensive approach to asset allocation extends beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.). It should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Legendary investor John Templeton was a leading advocate for developing a globally oriented value investing perspective to achieve investing outperformance.

Note: For expanded view, left click on this spreadsheet








The Country Value Rankings table above is based on a weighted-average ranking system. You will notice that there are nine categories (and one factor for each category) used in the analysis of each country as follows:

The next-to-last column on the Country Value Rankings spreadsheet shows the Weighted Average Summation Total for each country.  The average for the 22 countries is shown as 13.02 which is a Slightly Bearish overall World rating.

The overall market ratings for individual countries are:
Very Bullish -- China
Bullish -- South Korea and Singapore
Slightly Bullish -- Malaysia, Russia, Hong Kong, Australia, and Taiwan
Neutral -- Emerging Markets (EEM) and Germany
Slightly Bearish -- Mexico and Canada
Bearish -- Europe/Asia (EFA), U.S., France, and Japan
Very Bearish -- South Africa, United Kingdom, India, Brazil, Spain, and Italy 

Future investments in the Covered Calls Advisor Portfolio will be overweighted in these higher rated countries. It should also be noted that the U.S. is ranked 14th of the 22 countries rated, so U.S.-based companies selected for investment will be those with significant exposure to sales in countries/regions with relatively high expected GDP Growth.

This Country Value Rankings spreadsheet is detailed in terms of both the methodolgy used and the resources used to capture the information for each country. If you are interested in these details and would like further information or clarification, please share your comments and questions in writing. They are always welcomed. Click the 'comments' link below to post your feedback. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog.

Hopefully, this information is helpful in your thinking and analysis of your own equities selection methods related to your covered calls investing process!

Regards and Godspeed to All,
Jeff

Overall Market Meter Rating Remains at "Neutral"

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 remains unchanged at 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 3.25 (see blue line at the bottom of the chart above) is slightly lower than the 3.38 average of last month. The 3.25 is a Neutral rating (range from 2.51 to 3.50).  Five factors of the eight factors remained unchanged from last month.  The three factors that changed are as follows:
- Price Trend declined from Slightly Bullish to Neutral
- Interest Rates indicator declined from Neutral to Slightly Bearish
- Price/Earnings Ratio improved from Slightly Bearish to Neutral

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bullish sentiment is to "on-average sell 1% out-of-the-money covered calls for the nearest expiration month." So with this week's November 2012 options expiration, newly established positions for December 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 and Godspeed,
Jeff