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Tuesday, September 20, 2011

Establish Valero Energy Corp. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Valero Energy Corp.(VLO) covered calls as follows:

Established Valero Energy Corp.(VLO) Covered Calls for Oct2011:
09/20/2011 Bought 300 VLO @ $21.30
09/20/2011 Sold 3 VLO Oct2011 $23.00 Calls @ $.62

With total capacity of approximately 3.0 million barrels per day, Valero Energy Corp. is the largest petroleum refiner and marketer in the U.S. The company has the industry's most complex and sophisticated refining system. Most of its 16 refineries throughout the U.S., Canada and Aruba are able to process heavy, low-quality crude oil. The company has a growing network of retail outlets in the Great Plains, Southwest and Northeast.

VLO rates above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 18.24 is above this advisor's required threshold of 16.0), so it was decided to establish a covered calls position in VLO with an Oct2011 expiration.














Note: Click on chart above for larger image.

Two possible overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions would be as follows:

Stock Purchase Cost: $6,398.95
= ($21.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$174.80
= ($.62*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.30): -$8.95
= ($21.30-$21.30)*300 - $8.95 commissions
(c) Capital Appreciation (If VLO above $23.00 at Oct2011 expiration): +$501.05
+($23.00-$21.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $21.30): +$165.85
= (+$174.80 +$0.00 -$8.95)
Total Net Profit(If stock price above $23.00 at Oct2011 options expiration): +$675.85= (+$174.80 +$0.00 +$501.05)

1. Absolute Return if Unchanged at $21.30: +2.6%
= +$165.85/$6,398.95
Annualized Return If Unchanged (ARIU): +43.6%
= (+$165.85/$6,398.95)*(365/32 days)

2. Absolute Return (If stock price above $23.00 at Oct2011 options expiration):
+10.6% = +$675.85/$6,398.95
Annualized Return (If stock price above $23.00 at expiration): +120.5%
= (+$675.85/$6,398.95)*(365/32 days)

The downside breakeven price at expiration is at $20.68 ($21.30 - $.62).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Oct2011 options expiration) for this Valero Energy Corp.(VLO) covered calls position is 60.9%. This compares with a probability of profit of 52.4% for a buy-and-hold of Valero over the same time period.

Continuation Transactions -- General Motors Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Morgan Stanley, and Mylan Inc.

Upon Sep2011 options expiration last Friday, ten of the fourteen total covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions for five equities (General Motors Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, Morgan Stanley, and Mylan Inc.) with Oct2011 expirations. The detailed transactions history for these positions as well as possible results for these investments are as follows:

1. General Motors Co.(GM) -- Continuation
The transactions history is as follows:
07/20/2011 Bought 300 GM @ $29.32
07/20/2011 Sold 3 GM Aug2011 $30.00 Calls @ $.79
Note: the price of GM was $29.45 when the call options were sold.
08/20/2011 Aug2011 GM options expired.
08/22/2011 Sold 3 GM Sep2011 $24.00 Calls @ $.65
09/17/2011 Sep2011 GM options expired.
09/20/2011 Sold 3 GM Oct2011 $24.00 Calls @ $.57
Note: The price of GM was $22.80 when the options were sold.

Some possible performance results(including commissions) for these GM transactions are as follows:
Stock Purchase Cost: $8,804.95
= ($29.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$537.90
= (300*($.70+$.65+$.57) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $22.80): -$1,964.95
= ($22.80-$29.32)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $24.00 at expiration): -$1,604.95
= ($24.00-$29.32)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at $22.80): -$1,427.05
= (+$537.90 +$0.00 -$1,964.95)
Total Net Profit (If stock assigned at $24.00): -$1,067.05
= (+$537.90 +$0.00 -$1,604.95)

1. Absolute Return (If stock price unchanged at $22.80): -16.2%
= -$1,427.05/$8,804.95
Annualized Return If Assigned (ARIA) -95.4%
= (-$1,427.05/$8,804.95)*(365/62 days)

2. Absolute Return (If stock assigned at $24.00 strike price): -12.1%
= -$1,067.05/$8,804.95
Annualized Return If Assigned (ARIA): -71.3%
= (-$1,067.05/$8,804.95)*(365/62 days)


2. iShares MSCI China ETF (FXI) -- Continuation
The transactions history is as follows:
The transactions history is as follows:
04/18/2011 Bought 1,000 FXI @ $44.80
04/20/2011 Sold 10 FXI May2011 $47.00 Calls @ $.49
Note: the price of FXI was $45.88 when the calls were sold.
05/31/2011 Sold 10 FXI Jul2011 $47.00 Calls @ $.37
Note: The price of FXI was $45.18 when these call options were sold.
06/21/2011 FXI ETF distribution of $.68555 per share
07/16/2011 Jul2011 FXI options expired.
07/18/2011 Sold 10 FXI Aug2011 $42.00 Calls @$.71
08/20/2011 Aug2011 FXI options expired.
08/22/2011 Sold 10 FXI Sep2011 $42.00 Calls @ $.65
09/17/2011 Sep2011 FXI options expired.
09/20/2011 Sold 10 FXI Oct2011 $38.00 Calls @ $.47

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$2,626.50
= (1,000*($.49+$.37+$.71+$.65+$.47) - 5*$12.70 commissions)
(b) Distribution Income: $685.55 = $.68555 * 1,000 shares
(c) Capital Appreciation (If FXI price unchanged at $35.29 at expiration): -$9,518.95
= ($35.29-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If FXI assigned at $38.00 at expiration): -$6,808.95
= ($38.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $35.29 at expiration): -$6,206.90
= (+$2,626.50 +$685.55 -$9,518.95)
Total Net Profit (If FXI assigned at $38.00): -$2,894.85
= (+$2,626.50 +$685.55 -$6,206.90)

1. Absolute Return (If FXI unchanged at $35.29 at expiration): -13.9%
= -$6,206.90/$44,808.95
Annualized Return (If FXI unchanged at expiration): -27.0%
= (-$6,206.90/$44,808.95)*(365/187 days)

2. Absolute Return (If FXI assigned at $38.00 at expiration): -6.5%
= -$2,894.85/$44,808.95
Annualized Return If Assigned (ARIA): -12.6%
= (-$2,894.85/$44,808.95)*(365/187 days)


3. iShares MSCI Emerging Markets ETF (FXI) -- 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.
06/18/2011 Jun2011 Options Expired
Note: the price of EEM was $45.34 upon options expiration.
6/22/2011 Distribution Income $.46092 per share.
06/28/2011 Sold 5 EEM Jul2011 $47.00 Calls @ $.62
Note: price of EEM was $46.42 when these options were sold.
07/16/2011 Jul2011 EEM options expired.
07/18/2011 Sold 5 EEM Aug2011 $47.00 Calls @$.99
Note: The price of EEM was $46.55 when these call options were sold.
08/20/2011 Aug2011 EEM options expired.
08/22/2011 Sold 5 EEM Sep2011 $42.00 Calls @ $.71
09/17/2011 Sep2011 EEM options expired.
09/20/2011 Sold 5 EEM Oct2011 $42.00 Calls @ $.63
Note: The price of EEM was $39.68 when these call options 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: +$1,988.80
= [500*($.83 +$.35+$.62+$.99+$.71+$.63) - 6*$12.70 commissions]
(b) Distribution Income: $230.46 = $.46092 * 500 shares
(c) Capital Appreciation (If EEM unchanged at $39.68 at expiration): -$4,073.95
= ($39.68-$47.81)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $42.00): -$2,913.95
= ($42.00-$47.81)*500 - $8.95 commissions

Total Net Profit (If EEM price unchanged at $39.68 at expiration): -$1,854.69
= (+$1,988.80 +$230.46 -$4,073.95)
Total Net Profit (If EEM assigned at $42.00): -$694.69
= (+$1,988.80 +$230.46 -$2,913.95)

1. Absolute Return (If stock unchanged at $39.68 at expiration): -7.8%
= -$1,854.69/$23,913.95
Annualized Return (If stock unchanged at expiration): -15.1%
= (-$1,854.69/$23,913.95)*(365/187 days)

2. Absolute Return (If stock assigned at $42.00 at expiration): -2.9%
= -$694.69/$23,913.95
Annualized Return If Assigned (ARIA): -5.7%
= (-$694.69/$23,913.95)*(365/187 days)


4. Morgan Stanley (MS) -- Continuation
The transactions history is as follows:
06/03/2011 Bought 300 MS @ $22.988
06/03/2011 Sold 3 MS Jul2011 $25.00 Calls @ $.26
Note: the price of MS was $23.14 when the call options were sold.
07/16/2011 Jul2011 MS options expired.
07/18/2011 Sold 3 MS Sep2011 $22.00 Calls @$.66
Note: The price of MS was $20.82 when these call options were sold.
07/27/2011 Ex-Dividend of $.05 per share
09/17/2011 Sep2011 MS options expired.
09/20/2011 Sold 3 MS Oct2011 $17.00 Calls @ $.42
Note: The price of MS was $15.41 when these call options were sold.

Two possible overall performance results(including commissions) for the Morgan Stanley transactions would be as follows:
Stock Purchase Cost: $6,905.35
= ($22.988*300+$8.95 commission)

Net Profit:
(a) Options Income: +$276.40
= 300*($.26+$.66+$.42) - 3*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05 * 300 shares
(c) Capital Appreciation (If MS unchanged at $15.41):
-$2,282.35 = ($15.41-$22.988)*300 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $17.00): -$1,805.35
= ($17.00-$22.988)*300 - $8.95 commissions

Total Net Profit(If MS unchanged at $15.41): -$1,990.95
= (+$276.40 +$15.00 -$2,282.35)
Total Net Profit(If MS exercised at $17.00): -$1,513.95
= (+$276.40 +$15.00 -$1,805.35)

1. Absolute Return if Unchanged at $15.41: -28.8%
= -$1,990.95/$6,905.35
Annualized Return If Unchanged (ARIU) -74.6%
= (-$1,990.95/$6,905.35)*(365/141 days)

2. Absolute Return if Assigned at $17.00: -21.9%
= -$1,513.95/$6,905.35
Annualized Return If Assigned (ARIA): -56.8%
= (-$1,513.95/$6,905.35)*(365/141 days)


5. Mylan Inc. -- Continuation
The transactions history is as follows:
07/18/2011 Sold 5 Mylan Inc. (MYL) Aug2011 $23.00 Put Options @ $1.06
Note: the price of MYL stock was $22.98 today when these puts were sold.
08/20/2011 Aug2011 MYL options exercised and stock purchased at $23.00 per share.
08/22/2011 Sold 5 MYL Sep2011 $22.00 Calls @ $.46
09/17/2011 Sep2011 MYL options expired.
09/20/2011 Sold 5 MYL Oct2011 $22.00 Calls @ $.63
Note: The price of MYL was $20.48 when these call options were sold.

Two possible overall performance results(including commissions) for the Mylan Inc. transactions would be as follows:
Stock Purchase Cost: $11,508.95
= ($23.00*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,036.90
= 500*($1.06+$.46+$.63) - 3*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MYL unchanged at $20.48):
-$1,268.95 = ($20.48-$23.00)*500 - $8.95 commissions
(c) Capital Appreciation (If MS exercised at $17.00): -$508.95
= ($22.00-$23.00)*500 - $8.95 commissions

Total Net Profit(If MYL unchanged at $20.48): -$232.05
= (+$1,036.90 +$0.00 -$1,268.95)
Total Net Profit(If MYL exercised at $22.00): +$527.95
= (+$1,036.90 +$0.00 -$508.95)

1. Absolute Return if Unchanged at $20.48: -2.0%
= -$232.05/$11,508.95
Annualized Return If Unchanged (ARIU) -7.7%
= (-$232.05/$11,508.95)*(365/96 days)

2. Absolute Return if Assigned at $22.00: +4.6%
= +$527.95/$11,508.95
Annualized Return If Assigned (ARIA): +17.4%
= ($527.95/$11,508.95)*(365/96 days)

Closed -- iShares MSCI Germany ETF

The Sep2011 covered calls position in iShares MSCI Germany ETF (symbol EWG) expired last Friday. Today, a decision was made to sell the 500 shares in the Covered Calls Advisor Portfolio. This investment has suffered greatly both because of surprisingly anemic German GDP growth during the past quarter as well as the European debt crisis. With the uncertainty surrounding the ultimate outcome of the debt crisis, European stock investments are likely to continue to underperform until this situation is resolved more completely. The detailed transactions history for this EWG position and the corresponding results are as follows:

The transactions history for the iShares MSCI Germany ETF (EWG) position:
07/18/2011 Bought 500 EWG @ $25.03
07/18/2011 Sold 5 EWG Sep2011 $26.00 Calls @ $.70
Note: The price of EWG was $25.06 when the options were sold.
09/17/2011 Sep2011 EWG options expired.
09/20/2011 Sold 500 EWG @ $19.16


The performance results(including commissions) for these EWG transactions was as follows:
Stock Purchase Cost: $12,523.95
= ($25.03*500+$8.95 commission)

Net Profit:
(a) Options Income: +$337.30
= (500*$.70 - $12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$2,943.95
= ($19.16-$25.03)*500 - $8.95 commissions

Total Net Profit: -$2,606.65
= (+$337.30 +$0.00 -$2,943.95)

Absolute Return: -20.8%
= -$2,606.65/$12,523.95
Annualized Return If Assigned (ARIA) -118.7%
= (-$2,606.65/$12,523.95)*(365/64 days)

Monday, September 19, 2011

Establish Apple Inc., International Paper, and Peabody Energy Covered Calls

Today, new covered calls positions were established with Apple Inc.(AAPL), International Paper (IP), and Peabody Energy (BTU). Previous covered calls positions with Sep2011 expirations in Apple Inc. and International Paper Co. were in-the-money at expiration and the options were assigned and the stock called away. Upon re-considering the current prices of both Apple and International Paper over the weekend, it was decided to re-purchase shares in both companies and to establish Oct2011 covered calls positions. A third covered calls position was also initiated today in Peabody Energy Corp.(BTU). The details for each is presented below:

1. Apple Inc.(AAPL)
09/19/2011 Bought 100 shares AAPL at $396.544
09/19/2011 Sold 1 AAPL Oct2011 $410 Call Option @ $10.15

Two possible overall performance results(including commissions) for this Apple Inc.(AAPL) transaction would be as follows:
Stock Purchase Cost: $39,663.35
= ($396.544*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,005.30
= (100*$10.15 - $9.70 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $396.544 at expiration): -$8.95
= ($396.544-$396.544)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $410.00): +$1,336.65
= ($410.00-$396.544)*100 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$996.35
= (+$1,005.30 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $410.00): +$2,341.95
= (+$1,005.30 +$0.00 +$1,336.65)

1. Absolute Return (If stock unchanged at $396.544 at expiration): +2.5%
= +$996.35/$39,663.35
Annualized Return (If stock unchanged at expiration): +26.2%
= (+$996.35/$39,663.35)*(365/35 days)

2. Absolute Return (If stock assigned at $410.00 at expiration): +5.9%
= +$2,341.95/$39,663.35
Annualized Return (If stock assigned at $410.00): +61.6%
= (+$2,341.95/$39,663.35)*(365/35 days)


2. International Paper Co.(IP)

09/19/2011 Bought 400 shares IP at $26.978
09/19/2011 Sold 4 IP Oct2011 $28 Calls @ $1.18

Two possible overall performance results(including commissions) for this International Paper Co.(IP) transaction would be as follows:
Stock Purchase Cost: $10,800.15
= ($26.978*400+$8.95 commission)

Net Profit:
(a) Options Income: +$463.05
= (400*$1.18 - $11.95 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $26.978 at expiration): -$8.95
= ($26.978-$26.978)*400 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $28.00): +$399.85
= ($28.00-$26.978)*400 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$454.10
= (+$463.05 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $28.00): +$862.90
= (+$463.05 +$0.00 +$399.85)

1. Absolute Return (If stock unchanged at $26.978 at expiration): +4.2%
= +$454.10/$10,800.15
Annualized Return (If stock unchanged at expiration): +43.8%
= (+$454.10/$10,800.15)*(365/35 days)

2. Absolute Return (If stock assigned at $28.00 at expiration): +8.0%
= +$862.90/$10,800.15
Annualized Return (If stock assigned at $28.00): +83.3%
= (+$862.90/$10,800.15)*(365/35 days)


3. Peabody Energy Corp.(BTU)

09/19/2011 Bought 300 shares BTU at $44.208
09/19/2011 Sold 3 BTU Oct2011 $47 Calls @ $1.67

Two possible overall performance results(including commissions) for this Peabody Energy Corp.(BTU) transaction would be as follows:
Stock Purchase Cost: $13,271.35
= ($44.208*300+$8.95 commission)

Net Profit:
(a) Options Income: +$489.80
= (300*$1.67 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $44.208 at expiration): -$8.95
= ($44.208-$44.208)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$828.65
= ($47.00-$44.208)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$480.85
= (+$489.80 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $47.00): +$1,318.45
= (+$489.80 +$0.00 +$828.65)

1. Absolute Return (If stock unchanged at $44.208 at expiration): +3.6%
= +$480.85/$13,271.35
Annualized Return (If stock unchanged at expiration): +37.8%
= (+$480.85/$13,271.35)*(365/35 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +9.9%
= +$1,318.45/$13,271.35
Annualized Return (If stock assigned at $47.00): +103.6%
= (+$1,318.45/$13,271.35)*(365/35 days)

September 2011 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained a total of fourteen covered calls positions with September 2011 expirations, with the following results:

- Ten covered calls positions in the CCAP (Alcoa Inc., General Motors Co., iShares MSCI China ETF, iShares MSCI Emerging Markets ETF, iShares MSCI Germany ETF, iShares MSCI South Korea ETF, iShares MSCI Taiwan ETF, Morgan Stanley, ProShares UltraShort 20+ Year Treasury ETF, and Valero Energy Corp.) ended out-of-the-money. Decisions will be made to either sell the equities, or to keep them and sell calls to establish October 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.

- Four covered calls positions (Apple Inc., Best Buy Corp., International Paper Co., and Valero Energy Co.) were in-the-money and the stocks were assigned (i.e. stock called away) upon option expiration last Friday. The detailed history for these closed positions is as follows:

1. Apple Inc. (AAPL) -- Closed
The transactions history is as follows:
08/22/2011 Bought 100 AAPL @ $359.986
08/22/2011 Sold 1 AAPL Sep2011 $375.00 Call @ $8.45
Note: The call option was sold today when the AAPL stock was trading at $361.52.
09/17/2011 AAPL options closed in-the-money and stock assigned at $375.00 strike price.
Note: The closing price of AAPL at expiration was $400.50.

The result(including commissions) for the Apple Inc. (AAPL) transactions was as follows:

Stock Purchase Cost: $36,007.55
= ($359.986*100+$8.95 commission)

Net Profit:
(a) Options Income: +$835.30
= (100*$8.45 - $9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $375.00): +$1,492.45
= ($375.00-$359.986)*100 - $8.95 commissions

Total Net Profit(If stock assigned at $375.00): +$2,327.75
= (+$835.30 +$0.00 +$1,492.45)

Absolute Return (Stock Assigned at $375.00): +6.5%
= +$2,327.75/$36,007.55
Annualized Return: +90.8%
= (+$2,327.75/$36,007.55)*(365/26 days)


2. Best Buy Corp. (BBY) -- Closed
The transactions history is as follows:
01/24/2011 Bought 300 BBY @ $35.13
01/24/2011 Sell-to-Open(STO) 3 BBY Feb2011 $36.00 Calls @ $.57
02/19/2011 Feb 2011 Options Expired
03/21/2011 Sell-to-Open(STO) 3 BBY Apr2011 $34.00 Calls @ $.49
Note: the price of BBY was $31.92 today when the options were sold.
04/16/2011 Apr2011 BBY options expired.
04/26/2011 Sold 3 BBY May2011 $31.00 Calls @ $.60
Note: The price of BBY was $30.59 when these call options were sold.
05/20/2011 Bought-to-Close(BTC) 3 BBY May3011 $31.00 Calls @ $.36
Note: The price of BBY was $31.31 when the options were bought back.
05/20/2011 Sell-to-Open(STO) 3 BBY Jun2011 $32.00 Calls @ $.94
Note: The price of BBY was $31.43 when these options were sold.
06/18/2011 Jun2011 Options Expired
Note: the price of BBY was $31.01 upon options expiration.
06/28/2011 Sold 3 BBY Aug2011 $33.00 Calls @ $.83
Note: price of BBY stock was $31.90 when these options were sold.
08/20/2011 Aug2011 BBY options expired.
08/24/2011 Sold 3 BBY Sep2011 $25.00 Calls @$1.32
Note: The price of BBY was $24.73 when these call options were sold.
09/17/2011 BBY options closed in-the-money and stock assigned at $25.00 strike price.
Note: The closing price of BBY at expiration was $25.43.

The overall performance result(including commissions) for the Best Buy Corp.(BBY) transactions was as follows:
Stock Purchase Cost: $10,547.95
= ($35.13*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,238.60
= (300*($.57+$.49+$.60-$.36+$.94+$.83+$1.32) - 7*$11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If assigned at $25.00): -$3,047.95
= ($25.00-$35.13)*300 - $8.95 commissions

Total Net Profit(Stock assigned at $25.00): -$1,809.35
= (+$1,238.60 +$0.00 -$3,047.95)

Absolute Return (Stock Assigned at $25.00): -17.2%
= -$1,809.35/$10,547.95
Annualized Return: -26.5%
= (-$1,809.35/$10,547.95)*(365/236 days)


3. International Paper Co.(IP) -- Continuation
The transactions history is as follows:
05/17/2011 Bought 500 IP @ $31.26
05/17/2011 Sold 5 IP Jun2011 $32.00 Calls @ $.82
06/18/2011 Jun2011 Options Expired
Note: the price of IP was $26.57 upon options expiration.
06/21/2011 Sold 5 IP Jul2011 $30.00 Calls @ $.38
Note: price of IP stock was $28.56 when these options were sold.
07/16/2011 Jul2011 IP options expired.
07/18/2011 Sold 5 IP Aug2011 $30.00 Calls @$.90
Note: The price of IP was $29.79 when these call options were sold.
08/11/2011 Ex-Dividend of $.2625 per share
08/20/2011 Aug2011 IP options expired.
08/24/2011 Sold 5 IP Sep2011 $26.00 Calls @$.78
Note: The price of IP was $25.16 when these call options were sold.
09/17/2011 IP options closed in-the-money and stock assigned at $26.00 strike price.
Note: The closing price of IP at expiration was $27.98.

The overall performance results(including commissions) for the International Paper Co.(IP) transactions was as follows:
Stock Purchase Cost: $15,638.95
= ($31.26*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,389.20
= (500*($.82+$.38+$.90+$.78) - 4*$12.70 commissions)
(b) Dividend Income: $131.25 = $.2625 * 500 shares
(c) Capital Appreciation (If stock assigned at $26.00): -$2,638.95
= ($26.00-$31.26)*500 - $8.95 commissions

Total Net Profit (Stock assigned at $26.00): -$1,118.50
= (+$1,389.20 +$131.25 -$2,638.95)

Absolute Return (Stock assigned at $26.00 at expiration): -7.2%
= -$1,118.50/$15,638.95
Annualized Return: -21.2%
= (-$1,118.50/$15,638.95)*(365/123 days)


4. Valero Energy Corp. (VLO) -- Closed
The transactions history is as follows:
07/20/2011 Bought 300 VLO @ $25.72
07/20/2011 Sold 3 VLO Aug2011 $26.00 Calls @ $.97
Note: the price of VLO was $25.81 when the call options were sold.
08/15/2011 Ex-dividend payment of $.05 per share.
08/24/2011 Sold 3 VLO Sep2011 $22.00 Calls @ $.56
09/17/2011 VLO options closed in-the-money and stock assigned at $22.00 strike price.
Note: The closing price of VLO at expiration was $22.19.


The overall performance results(including commissions) for the Valero Energy Corp.(VLO) transactions was as follows:

Stock Purchase Cost: $7,724.95
= ($25.72*300+$8.95 commission)

Net Profit:
(a) Options Income: +$436.60
= ($.97+$.56)*300 shares) - 2*$11.20 commissions
(b) Dividend Income: +$15.00 = $.05*300 shares (Ex-dividend date 8/15/2011)
(c) Capital Appreciation (VLO above $22.00 at Sep2011 expiration): -$1,124.95
= +($22.00-$25.72)*300 - $8.95 commissions

Total Net Profit(If stock price above $22.00 at Sep2011 options expiration): -$673.35
= (+$436.60 +$15.00 -$1,124.95)

Absolute Return (Stock price above $22.00 at Sep2011 options expiration): -8.7%
= -$673.35/$7,724.95
Annualized Return (If stock price above $26.00 at expiration): -53.9%
= (-$673.35/$7,724.95)*(365/59 days)

Tuesday, September 13, 2011

Overall Market Meter Rating Remains "Slightly Bullish"

Each month during options expiration week, the Covered Calls Advisor re-calculates the current values for each of the eight factors used to determine the "Overall Market Meter" rating. 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 identical to the 3.50 of last month. The 3.50 is exactly on the inflection point between Neutral (range of 2.5 to 3.5) and Slightly Bullish (range from 3.5 to 4.5). Since the most recent rating has been Slightly Bullish, this rating will be retained unless the Overall Market Meter average falls below 3.50, in which case the overall sentiment would change to Neutral. All eight of the factors used to determine the Overall Market Meter rating remained unchanged from the prior analysis last month.

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bullish sentiment is to "on-average sell 2% out-of-the-money covered calls for the nearest expiration month." So with the September 2011 options expiration this week, newly established positions for October 2011 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

Thursday, September 1, 2011

Continuation Transaction -- ProShares UltraShort 20+ Year Treasury ETF

Today, a decision was made to retain the shares held in ProShares UltraShort 20+ Year Treasury ETF (TBT) and to establish a Sep2011 covered calls position. The detailed transactions as well as some possible results for this investment are as follows:

1. ProShares UltraShort 20+ Year Treasury ETF (TBT) -- Continuation
The transactions history is as follows:
05/02/2011 Bought 200 TBT @ $35.75
05/02/2011 Sold 2 TBT May2011 $37.00 Calls @ $.36
05/21/2011 May2011 Options Expired
Note: the price of TBT was $34.16 upon options expiration.
06/28/2011 Sold 2 TBT Jul2011 $35.00 Calls @ $.39
Note: price of TBT was $33.94 when these options were sold.
07/16/2011 Jul2011 TBT options expired.
07/21/2011 Sold 2 TBT Aug2011 $34.00 Calls @$.77
Note: The price of TBT was $33.28 when these call options were sold.
08/20/2011 Aug2011 Options Expired
09/01/2011 Sold 2 TBT Sep2011 $26.00 Calls @ $.68
Note: The price of TBT was $25.45 when these call options were sold.


Two possible overall performance results(including commissions) for the TBT transactions would be as follows:
Stock Purchase Cost: $7,158.95
= ($35.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$398.22
= 200*($.36+$.39+$.77+$.68) - 4*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT unchanged at $25.45):
-$2,068.95 = ($25.45-$35.75)*200 - $8.95 commissions
(c) Capital Appreciation (If TBT exercised at $26.00): -$1,958.95
= ($26.00-$35.75)*200 - $8.95 commissions

Total Net Profit(If TBT unchanged at $25.45): -$1,670.73
= (+$398.22 +$0.00 -$2,068.95)
Total Net Profit(If TBT exercised at $26.00): -$1,560.73
= (+$398.22 +$0.00 -$1,958.95)

Absolute Return if Unchanged at $25.45: -23.3%
= -$1,670.73/$7,158.95
Annualized Return If Unchanged (ARIU) -61.7%
= (-$1,670.73/$7,158.95)*(365/138 days)

Absolute Return if Assigned at $26.00: -21.8%
= -$1,560.73/$7,158.95
Annualized Return If Assigned (ARIA) -57.7%
= (-$1,560.73/$7,158.95)*(365/138 days)