Returns -- Through October 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 11.57% so far in 2012. This is 0.90 percentage points (+11.57% minus 12.47%) 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 October 31, 2012) = +11.57%
= ($327,613.42-$293,634.14)/$293,634.14
Benchmark Russell 3000 (IWV) Absolute Return (Jan 1st through October 31, 2012)
= +12.47%
= ($83.43-$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 Mylan Inc. Covered Calls

Today, a new covered calls position was established in Mylan Inc. (ticker symbol MYL) with a Nov2012 expiration and at the $24.00 strike price. The transactions are 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.

A possible overall performance result (including commissions) for this Mylan Inc. (MYL) covered calls position is 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 (If MYL price unchanged at $23.88 upon expiration): -$8.95
=+($23.88-$23.88)*1,000 - $8.95 commissions; OR
(c) Capital Appreciation (If MYL assigned at $24.00 upon expiration): +$111.05
=+($24.00-$23.88)*1,000 - $8.95 commissions

Total Net Profit (If MYL price unchanged at $23.88 at Nov2012 expiration): +$624.60
= (+$633.55 +$0.00 -$8.95); OR
Total Net Profit (If MYL assigned at $24.00 at Nov2012 expiration): +$744.60
= (+$633.55 +$0.00 +$111.05)

1. Absolute Return (If MYL unchanged at $23.88 at Nov2012 expiration): +2.6%
= +$624.60/$23,888.95
Annualized Return (If stock assigned): +38.2%
= (+$624.60/$23,888.95)*(365/25 days); OR

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

Established Canadian Natural Resources LTD Covered Calls

Today, a new covered calls position was established in Canadian Natural Resources LTD (ticker symbol CNQ) with a Nov2012 expiration and at the $31.00 strike price. 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.

A possible overall performance result (including commissions) for this Canadian Natural Resources LTD (CNQ) covered calls position is as follows:
Stock Purchase Cost: $18,176.95
= ($30.28*600+$8.95 commission)

Net Profit:
(a) Options Income: +$436.55
= ($.75 X 600 shares) - $13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If CNQ price unchanged at $30.28 upon expiration): -$8.95
=+($30.28-$30.28)*600 - $8.95 commissions; OR
(c) Capital Appreciation (If CNQ assigned at $31.00 upon expiration): +$423.05 =+($31.00-$30.28)*600 - $8.95 commissions

Total Net Profit (If CNQ price unchanged at $30.28 at Nov2012 expiration): +$427.60
= (+$436.55 +$0.00 -$8.95); OR
Total Net Profit (If CNQ assigned at $31.00 at Nov2012 expiration): +$859.60
= (+$436.55 +$0.00 +$423.05)

1. Absolute Return (If CNQ unchanged at $30.28 at Nov2012 expiration): +2.4%
= +$427.60/$18,176.95
Annualized Return (If stock assigned): +35.8%
= (+$427.60/$18,176.95)*(365/24 days); OR

2. Absolute Return (If CNQ assigned at $31.00 at Nov2012 expiration): +4.7% = +$859.60/$18,176.95
Annualized Return (If stock assigned): +71.9%
= (+$859.60/$18,176.95)*(365/24 days)

Established 100% Cash-Secured Puts -- United Continental Holdings Inc.

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in United Continental Holdings Inc.(Symbol UAL) with a Nov2012 expiration.

The transaction 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.

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 seven Put options sold.

A possible overall performance results(including commissions) for this UAL transaction would be 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 (If UAL above $19.00 at Nov2012 expiration): +$0.00
= ($19.00-$19.00)*1,000

Total Net Profit (If UAL remains above $19.00 at Nov2012 options expiration): +$463.55  = (+$463.55 +$0.00 +$0.00)

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

The downside 'breakeven price' at expiration is at $18.52 ($19.00 - $.48). Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Nov2012 options expiration) for this United Continental (UAL) cash-secured Puts position is 75.8%. This compares with a probability of profit of 51.2% for a buy-and-hold of UAL over the same time period.

The 'crossover price' at expiration is $20.33 ($19.85 + $.48). This is the price above which it would have been more profitable to simply buy-and-hold UAL until Nov 21st (the Nov2012 options expiration date) rather than holding the short Put options. The probability of exceeding this crossover price at expiration is 43.3%.