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Monday, May 30, 2011

Covered Calls Continuation Transactions

Upon May2011 options expiration, several covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Last Friday, a decision was made to re-establish covered calls for three positions with June 2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. Freeport McMoRan Copper and Gold Inc.(FCX) -- Continuation
The transactions history is 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 May2011 $55.00 Calls @ $.44
Note: the price of FCX was $51.60 when the calls were sold.

Two possible overall performance results(including commissions) for the Freeport-McMoRan Copper and Gold Inc.(FCX) transactions would be as follows:
Stock Purchase Cost: $33,008.95
= ($110.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$3,921.30
= [300*$6.35 + 600*($1.43+$1.95+$.44) - 3*$11.20 - 3*6*$13.45 commissions]
(b) Dividend Income: +$450.00 [($.50 + $.25) * 600 shares]
(c) Capital Appreciation (If stock price unchanged at $51.60):
-$2,048.95 = ($51.60-$55.00)*600 - $8.95 commissions
(c) Capital Appreciation (If assigned at $55.00): -$8.95
= ($55.00-$55.00)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $51.60): +$2,322.35
= (+$3,921.30 +$450.00 -$2,048.95)
Total Net Profit(If stock assigned at $55.00): +$4,362.35
= (+$3,921.30 +$450.00 -$8.95)

Absolute Return if Unchanged at $51.60: +7.0%
= +$2,322.35/$33,008.95
Annualized Return If Unchanged (ARIU): +18.2%
= (+$2,322.35/$33,008.95)*(365/141 days)

Absolute Return if Assigned at $55.00: +13.2%
= +$4,362.35/$33,008.95
Annualized Return If Assigned (ARIA): +34.2%
= (+$4,362.35/$33,008.95)*(365/141 days)


2. 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.

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: +$564.60
= [500*($.83 +$.35) - 2*$12.70 commissions]
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $47.83 at expiration): +1.05
= ($47.83-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $49.00): +$586.05
= ($49.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$565.65
= (+$564.60 +$0.00 +$1.05)
Total Net Profit (If stock assigned at $49.00): +$1,150.65
= (+$564.60 +$0.00 +$586.05)

1. Absolute Return (If stock unchanged at $47.83 at expiration): +2.4%
= +$565.65/$23,913.95
Annualized Return (If stock unchanged at expiration): +14.2%
= (+$565.65/$23,913.95)*(365/61 days)

2. Absolute Return (If stock assigned at $49.00 at expiration): +4.8%
= +$1,150.65/$23,913.95
Annualized Return (If stock assigned at $49.00): +28.8%
= (+$1,150.65/$23,913.95)*(365/61 days)


3. iShares MSCI South Korea ETF (EWY) -- Continuation
The transactions history is 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.

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

Net Profit:
(a) Options Income: +$1,161.10
= [600*($1.39+$.59) - 2*$13.45 commissions]
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $64.84 at expiration): +$393.05
= ($64.84-$64.17)*600 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $67.00): +$1,287.05
= ($67.00-$64.84)*600 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$1,554.15
= (+$1,161.10 +$0.00 +$393.05)
Total Net Profit (If stock assigned at $67.00): +$2,715.25
= (+$1,161.10 +$0.00 +$1,554.15)

1. Absolute Return (If stock unchanged at $64.84 at expiration): +4.0%
= +$1,554.15/$38,510.95
Annualized Return (If stock unchanged at expiration): +24.1%
= (+$1,554.15/$38,510.95)*(365/61 days)

2. Absolute Return (If stock assigned at $67.00 at expiration): +7.1%
= +$2,715.25/$38,510.95
Annualized Return (If stock assigned at $67.00): +42.2%
= (+$2,715.25/$38,510.95)*(365/61 days)