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Friday, March 23, 2012

Sold 100% Cash-Secured Puts -- Hartford Financial Services Group (HIG)

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Hartford Financial Services Group (Symbol HIG) with an Apr2012 expiration.

The transaction was as follows:
03/23/2012 Sold 3 Hartford Financial Services Group (HIG) Apr2012 $21.00 Put Options @ $.67
Note: the price of HIG was $21.29 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 three Put options sold.

A possible overall performance results(including commissions) for this Hartford Financial Services Group (HIG) transaction would be as follows:
100% Cash-Secured Cost Basis: $6,300.00
= $21.00*300

Net Profit:
(a) Options Income: +$189.80
= ($.67*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HIG above $21.00 at Apr2012 expiration): +$0.00
= ($21.00-$21.00)*300

Total Net Profit(If HIG above $21.00 at Apr2012 options expiration): +$189.80
= (+$189.80 +$0.00 +$0.00)

Absolute Return (If HIG above $21.00 at Apr2012 options expiration and Put options thus expire worthless): +3.0%
= +$189.80/$6,300.00
Annualized Return (If stock price above $21.00 at expiration): +36.7%
= (+$189.80/$6,300.00)*(365/30 days)

The downside 'breakeven price' at expiration is at $20.33 ($21.00 - $.67).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2012 options expiration) for this Hartford Financial Services Group (HIG) cash-secured Puts position is 69.9%. This compares with a probability of profit of 51.2% for a buy-and-hold of HIG over the same time period.

The 'crossover price' at expiration is $21.67 ($21.00 + $.67).
This is the price above which it would have been more profitable to simply buy-and-hold HIG until Apr 17, 2012 (the Apr21st 2012 options expiration date) rather than holding the short Put options. The probability of exceeding this crossover price at expiration is 43.7%.

Closed -- iPath S&P 500 VIX Short Term Futures ETF (VXX)

The position in iPath S&P 500 VIX Short-Term Futures ETF (VXX) was closed today at a substantial loss. The position was established in the event of a significant pullback in the S&P 500. This pullback has not occurred and market volatility has continued its recent decline.

The transactions history was as follows:
02/24/2012 Sold 3 iPath S&P 500 VIX Short-Term Futures ETN (VXX) Mar2012 $25.00 Put Options @ $2.49
Note: the price of VXX was $23.76 today when these Puts were sold.
03/17/2012 Options assigned and VXX purchased at $25.00 strike price.
03/23/2012 Sold-to-Close 300 VXX shares @ $18.30

The overall performance result (including commissions) for the iPath S&P 500 VIX Short-Term Futures ETF (VXX) transactions was as follows:
Stock Purchase Cost: $7,508.95
= ($25.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$735.80
= $2.49*300 shares - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock sold at $18.30): -$2,018.95
+($18.30-$25.00)*300 - $8.95 commissions

Total Net Profit: -$1,283.15
= (+$735.80 +$0.00 -$2,018.95)

Absolute Return: -17.1%
= -$1,283.15/$7,508.95

Establish Market Vectors Russia Index ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Market Vectors Russia Index ETF (Symbol RSX) covered calls as follows:

Established Market Vectors Russia Index ETF (RSX) Covered Calls for Feb2012:
03/23/2012 Bought 300 RSX @ $30.85
03/23/2012 Sold 3 RSX Apr2012 $31.00 Calls @ $1.10
Note: the price of RSTX was $30.95 these call options were sold.

Although there are unlimited outcomes, two possible overall performance results(including commissions) for this Market Vectors Russia Index ETF (RSX) position are as follows:
Stock Purchase Cost: $9,263.95
= ($30.85*300 + $8.95 commission)

Net Profit:
(a) Options Income: +$318.80
= ($1.10*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of RSX is unchanged at $30.85): -$8.95
= ($30.85-$30.85)*300 - $8.95 commissions
(c) Capital Appreciation (If RSX above $31.00 at Apr2012 expiration): +$36.05
+($31.00-$30.85)*300 - $8.95 commissions

Total Net Profit(If RSX unchanged at $30.85): +$309.85
= (+$318.80 +$0.00 -$8.95)
Total Net Profit(If RSX above $31.00 at Apr2012 options expiration): +$354.85
= (+$318.80 +$0.00 +$36.05)

1. Absolute Return if Unchanged at $30.85: +3.3%
= +$309.85/$9,263.95
Annualized Return If Unchanged (ARIU): +40.7%
= (+$309.85/$9,263.95)*(365/30 days)

2. Absolute Return (If RSX above $31.00 at Apr2012 options expiration): +3.8%
= +$354.85/$9,263.95
Annualized Return (If TBT above $19.00 at expiration): +46.6%
= (+$354.85/$9,263.95)*(365/30 days)

The downside 'breakeven price' at expiration is at $29.75 ($30.85 - $1.10).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2012 options expiration) for this Market Vectors Russia Index ETF (RSX) covered calls position is 66.7%. This compares with a probability of profit of 51.1% for a buy-and-hold of RSX over the same time period.

The 'crossover price' at expiration is $32.10 ($31.00 + $1.10).
This is the price above which it would have been more profitable to simply buy-and-hold this Russia ETF until April 21, 2012 (the Apr2012 options expiration date) rather than holding the covered calls position. The Options Pricing Model indicates that the probability that this will occur is 33.8%.

Wednesday, March 21, 2012

Establish iShares MSCI Emerging Markets ETF Covered Calls

Today, a new covered calls position was established in iShares MSCI Emerging Markets ETF (Symbol EEM) with an Apr2012 expiration and at the $44.00 strike price. The transactions and some possible outcomes are as follows:

03/21/2012 Bought 500 EEM shares @ $43.31
03/21/2012 Sold 5 EEM Apr2012 $44.00 Call Options @ $.78

Two possible overall performance results(including commissions) for the iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $21,663.95
= ($43.31*500+$8.95 commission)

Net Profit:
(a) Options Income: +$377.30
= ($.78*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If equity price unchanged at $43.31): -$8.95
+($43.31-$43.31)*500 - $8.95 commissions
(c) Capital Appreciation (If EEM assigned at $44.00): +$336.05
+($44.00-$43.31)*500 - $8.95 commissions

Total Net Profit(If price unchanged at $43.31 at Apr2012 expiration): +$368.35
= (+$377.30 +$0.00 -$8.95)
Total Net Profit(If equity assigned at $44.00 at Apr2012 expiration): +$713.35
= (+$377.30 +$0.00 +$336.05)

1. Absolute Return (If EEM price unchanged at Apr2012 expiration): +1.7%
= +$368.35/$21,663.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +19.4%
= (+$368.35/$21,663.95)*(365/32 days)

2. Absolute Return (If EEM equity assigned at $44.00 at Apr2012 expiration): +3.3%
= +$713.35/$21,663.95
Annualized Return (If stock assigned): +37.6%
= (+$713.35/$21,663.95)*(365/32 days)

Monday, March 19, 2012

Continuation Transactions -- Halliburton Co., Mylan Inc., and Rio Tinto PLC

Upon Mar2012 options expiration, five of the ten covered calls positions in the Covered Calls Advisor Portfolio (CCAP) expired. Today, a decision was made to re-establish covered calls positions in three stock positions -- Halliburton Co.(HAL), Mylan Inc.(MYL), and Rio Tinto PLC (RIO). The detailed transactions history for these positions as well as possible results are as follows:

1. Halliburton Co.(HAL) -- Continuation
The transactions history is as follows:
03/07/2012 Bought 300 Halliburton Co. Shares @ $34.02
03/08/2012 Sold 3 HAL Mar2012 $35.00 Calls @ $.48
Note: the price of Halliburton was $34.59 today when the calls were sold.
03/18/2012 Mar2012 options expired.
03/19/2012 Sold 3 HAL Apr2012 $35.00 Calls @ $1.18
Note: the price of HAL was $34.90 when these options were sold.

Two possible overall performance results(including commissions) for the Halliburton Co.(HAL)transactions would be as follows:
Stock Purchase Cost: $10,214.95
= ($34.02*300+$8.95 commission)

Net Profit:
(a) Options Income: +$486.80
= ($.48+$1.18)*300 shares - $11.20 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $34.90): +$255.05
+($34.90-$34.02)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $35.00): +$285.05
+($35.00-$34.02)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $34.90 at Apr2012 expiration): +$741.85
= (+$486.80 +$0.00 +$255.05)
Total Net Profit(If stock assigned at $35.00 at Apr2012 expiration): +$771.85
= (+$486.80 +$0.00 +$285.05)

1. Absolute Return (If stock price unchanged at Apr2012 expiration): +7.3%
= +$741.85/$10,214.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +57.6%
= (+$741.85/$10,214.95)*(365/46 days)

2. Absolute Return (If stock assigned at $35.00 at Apr2012 expiration): +7.6%
= +$771.85/$10,214.95
Annualized Return (If stock assigned): +60.0%
= (+$771.85/$10,214.95)*(365/46 days)


2. Mylan Inc.(MYL) -- Continuation
The transactions history is as follows:
03/07/2012 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.

Two possible overall performance results(including commissions) for the Mylan Inc.(MYL) transactions would be as follows:
Stock Purchase Cost: $11,263.95
= ($22.51*500+$8.95 commission)

Net Profit:
(a) Options Income: +$352.30
= ($.26+$.47)*500 shares - $12.70 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $22.73): +$101.05
+($22.73-$22.51)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $23.00): +$236.05
+($23.00-$22.51)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at Apr2012 expiration): +$453.35
= (+$352.30 +$0.00 +$101.05)
Total Net Profit(If stock assigned at $23.00 at Apr2012 expiration): +$588.35
= (+$352.30 +$0.00 +$236.05)

1. Absolute Return (If stock price unchanged at Apr2012 expiration): +4.0%
= +$453.35/$11,263.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +31.9%
= (+$453.35/$11,263.95)*(365/46 days)

2. Absolute Return (If stock assigned at $23.00 at Apr2012 expiration): +5.2%
= +$588.35/$11,263.95
Annualized Return (If stock assigned): +41.4%
= (+$588.35/$11,263.95)*(365/46 days)


3. Rio Tinto PLC (RIO) -- Continuation
The transactions history is as follows:
02/21/2012 Bought 300 RIO @ $58.24
02/21/2012 Sold 3 RIO Mar2012 $57.50 Calls @ $1.80
02/29/2012 Ex-Dividend $273.00 = $.91 * 300 shares
03/18/2012 Mar2012 options expired.
03/19/2012 Sold 3 RIO Apr2012 $57.50 Calls @ $1.75
Note: the price of RIO was $57.30 when these options were sold.

Two possible overall performance results(including commissions) for the Rio Tinto PLC ADR (RIO) transactions would be as follows:
Stock Purchase Cost: $17,480.95
= ($58.24*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,053.80
= ($1.80+$1.75)*300 shares - $11.20 commissions
(b) Dividend Income: +$273.00
= $.91 per share x 300 shares
(c) Capital Appreciation (If stock price unchanged at $57.30 at Apr2012 expiration):
-$290.95 = +($57.30-$58.24)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $57.50): -$230.95
+($57.50-$58.24)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $57.30 at Apr2012 expiration): +$1,035.85
= (+$1,053.80 +$273.00 -$290.95)
Total Net Profit(If stock assigned at $57.50 at Apr2012 expiration): +$1,095.85
= (+$1,053.80 +$273.00 -$230.95)

1. Absolute Return (If stock price unchanged at $57.30 at Apr2012 expiration): +5.9%
= +$1,035.85/$17,480.95
Annualized Return (If stock assigned at Apr2012 expiration): +35.5%
= (+$1,035.85/$17,480.95)*(365/61 days)

2. Absolute Return (If stock assigned at Apr2012 expiration): +6.3%
= +$1,095.85/$17,480.95
Annualized Return (If stock assigned at Apr2012 expiration): +37.5%
= (+$1,095.85/$17,480.95)*(365/61 days)

Establish Hess Corp. Covered Calls

Today, a new covered calls position was established in Hess Corporation (Symbol HES) with an Apr2012 expiration and at the $65.00 strike price. The transactions and some possible outcomes are as follows:

03/19/2012 Bought 200 HES shares @ $62.572
03/19/2012 Sold 2 HES Apr2012 $65.00 Call Options @ $1.24
Note: the price of HES was $63.24 when these calls were sold.

Two possible overall performance results(including commissions) for the Hess Corp.(HES) transactions would be as follows:
Stock Purchase Cost: $12,523.35
= ($62.572*200+$8.95 commission)

Net Profit:
(a) Options Income: +$237.55
= ($1.24*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $62.572): -$8.95
+($62.572-$67.572)*200 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $65.00): +$476.65
+($65.00-$62.572)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at Apr2012 expiration): +$228.60
= (+$237.55 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $65.00 at Apr2012 expiration): +$714.20
= (+$237.55 +$0.00 +$476.65)

1. Absolute Return (If stock price unchanged at Apr2012 expiration): +1.8%
= +$228.60/$12,523.35
Annualized Return (If stock price unchanged at Apr2012 expiration): +19.6%
= (+$228.60/$12,523.35)*(365/34 days)

2. Absolute Return (If stock assigned at $65.00 at Apr2012 expiration): +5.7%
= +$714.20/$12,523.35
Annualized Return (If stock assigned): +61.2%
= (+$714.20/$12,523.35)*(365/34 days)

Establish Apple Inc. Covered Call

The previous covered call in Apple Inc. was assigned upon Mar2012 options expiration this past Friday. Today, a new covered call position was established in Apple Inc. with an Apr2012 expiration and at the $620 strike price. The transactions and some possible outcomes are as follows:

03/19/2012 Bought 100 AAPL shares @ $593.00
03/19/2012 Sold 1 AAPL Apr2012 $620.00 Call Option @ $18.25
Note: the price of AAPL was $595.43 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: $59,308.95
= ($593.00*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,815.30
= ($18.25*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $593.00): -$8.95
+($593.00-$593.00)*100 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $620.00): +$2,691.05
+($620.00-$593.00)*100 - $8.95 commissions

Total Net Profit(If stock price unchanged at Apr2012 expiration): +$1,806.35
= (+$1,815.30 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $620.00 at Apr2012 expiration): +$4,506.35
= (+$1,815.30 +$0.00 +$2,691.05)

1. Absolute Return (If stock price unchanged at Apr2012 expiration): +3.0%
= +$1,806.35/$59,308.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +32.7%
= (+$1,806.35/$59,308.95)*(365/34 days)

2. Absolute Return (If stock assigned at $620.00 at Apr2012 expiration): +7.6%
= +$4,506.35/$59,308.95
Annualized Return (If stock assigned): +81.6%
= (+$4,506.35/$59,308.95)*(365/34 days)

Saturday, March 17, 2012

March 2012 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained ten covered calls positions with March 2012 expirations. A summary of the results were as follows:
- Five positions (Halliburton, iPath S&P 500 VIX Short-Term Futures ETN, iShares MSCI China ETF, Mylan Inc., and Rio Tinto Ltd.) expired out-of-the-money. Decisions will be made to either sell these equities, or to keep them and sell calls to establish April 2012 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.

- Five positions (Apple Inc., iShares MSCI Emerging Markets ETF, iShares MSCI South Korea ETF, Morgan Stanley, and ProShares UltraShort 20+ Years Treasury Bonds ETF) were in-the-money upon Mar2012 options expiration. These equities were assigned (i.e. equities called away).

The annualized return-on-investment financial results for these closed positions is:
Apple Inc. -- +52.6%
iShares MSCI Emerging Markets ETF -- -1.2%
iShares MSCI South Korea ETF -- +35.9%
Morgan Stanley -- +64.2%
ProShares UltraShort 20+ Years Treasury Bonds ETF -- +41.1%

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

1. Apple Inc.(AAPL) -- Closed
The transaction history is as follows:
09/19/2011 Bought 100 shares AAPL at $396.544
09/19/2011 Sold 1 AAPL Oct2011 $410 Call Option @ $10.15
10/22/2011 Oct2011 option expired.
Note: the AAPL price was $392.87 at option expiration.
10/24/2011 Sold 1 AAPL Nov2011 $410 Call Option @ $7.20
Note: the price of AAPL was $399.10 when the option was sold.
11/19/2011 Nov2011 AAPL options expired.
11/30/2011 Sold 1 AAPL Dec2011 $400.00 Call @ $4.40
Note: the price of AAPL was $392.94 today when this call option was sold.
12/17/2011 Dec2011 AAPL options expired.
Note: the price of AAPL was $381.02 upon Dec2012 options expiration.
2/1/2012 Sold 1 AAPL Feb2012 $465 Call @ $3.85
Note: the price of AAPL was $456.91 today when this call option was sold.
02/17/2012 Bought-to-Close 1 AAPL Feb2012 $465.00 Call @ $37.05
02/17/2012 Sold-to-Open 1 AAPL Mar2012 $485.00 Call @ $26.95
Note: the price of AAPL was $502.03 when these transactions were made.
03/18/2012 Mar2012 Options Expired.
Note: the price of AAPL was $585.57 upon options expiration.

The performance result(including commissions) for this AAPL position was as follows:
Stock Purchase Cost: $39,663.35
= ($396.544*100+$8.95 commission)

Net Profit:
(a) Options Income: +$1,501.50
= (100*($10.15+$7.20+$4.40+$3.85-$37.05+$26.95) - 5*$9.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock assigned at $485.00 at expiration): +$8,836.65
= ($485.00-$396.544)*100 - $8.95 commissions

Total Net Profit (Stock assigned at $485.00): +$10,338.15
= (+$1,501.50 +$0.00 +$8,836.65)

Absolute Return (Stock assigned at Mar2012 options expiration): +26.1%
= +$10,338.15/$39,663.35
Annualized Return: +52.6%
= (+$10,338.15/$39,663.35)*(365/181 days)


2. iShares MSCI Emerging Markets ETF (EEM) -- Closed
The transactions history was 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.
10/22/2011 Oct2011 options expired.
10/26/2011 Sold 5 EEM Nov2011 $41.00 Calls @ $.78
11/19/2011 Nov2011 EEM options expired.
11/30/2011 Sold 5 EEM Dec2011 $41.00 Calls @ $.59
Note: the price of EEM was $39.71 today when these call options were sold.
12/20/2011 Ex-Distribution $173.48 = $.34696 * 500 shares
01/20/2012 Bought-to-Close 5 EEM Jan2012 $39.00 Calls @ $2.43
Note: the price of EEM was $41.41 when these call options were bought.
01/20/2012 Sold 5 EEM Feb2012 $42.00 Calls @ $.80
Note: the price of EEM was $41.50 today when these call options were sold.
02/17/2012 Bought-to-Close 5 EEM Feb2012 $42.00 Calls @ $1.97
Note: the price of EEM was $43.95 when these call options were bought-to-close.
02/20/2012 Sold 5 EEM Feb2012 $43.00 Calls @ $1.83
Note: the price of EEM was $44.02 when these call options were sold.
03/18/2012 Mar2012 Options Expired.
Note: the price of EEM was $44.09 upon options expiration.

The overall performance result(including commissions) for these iShares MSCI Emerging Markets ETF (EEM) transactions was as follows:
Stock Purchase Cost: $23,913.95
= ($47.81*500+$8.95 commission)

Net Profit:
(a) Options Income: +$1,725.30
= [500*($.83 +$.35+$.62+$.99+$.71+$.63+$.78+$.59-$2.43+$.80-$1.97+$1.83) - 11*$12.70 commissions]
(b) Distribution Income: $403.94 = ($.46092+$.34696) * 500 shares
(c) Capital Appreciation (Stock assigned at $43.00): -$2,396.05
= ($43.00-$47.81)*500 - $8.95 commissions

Total Net Profit (EEM assigned at $43.00): -$266.81
= (+$1,725.30 +$403.94 -$2,396.05)

Absolute Return (EEM assigned at $43.00 at expiration): -1.1%
= -$266.81/$23,913.95
Annualized Return: -1.2%
= (-$266.81/$23,913.95)*(365/335 days)


3. iShares MSCI South Korea ETF (EWY) -- Closed
The transactions history was as follows:
10/25/2011 Bought 800 EWY @ $54.62
10/25/2011 Sold 8 EWY Nov2011 $54.00 Calls @ $2.59
Note: these call options were sold with the price of EWY at $54.62
11/19/2011 Nov2011 EWY options expired.
11/30/2011 Sold 8 EWY Dec2011 $56.00 Calls @ $1.48
Note: the price of EWY was $55.38 today when these call options were sold.
12/20/2011 Ex-Distribution $298.41 = $.37301 * 800 shares
01/20/2012 Bought-to-Close 8 EWY Jan2012 $55.00 Calls @ $1.75
Note: the price of EWY was $56.73 when these call options were bought.
01/20/2012 Sold 8 EWY Feb2012 $57.00 Calls @ $1.50
Note: the price of EWY was $56.73 when these call options were sold.
02/17/2012 Bought-to-Close 8 EWY Feb2012 $57.00 Calls @ $2.48
Note: the price of EWY was $59.46 when these call options were bought-to-close.
02/20/2012 Sold 8 EWY Mar2012 $59.00 Calls @ $1.85
Note: the price of EWY was $59.32 when these call options were sold.
03/18/2012 Mar2012 Options Expired.
Note: the price of EWY was $60.46 upon options expiration.

The overall performance result(including commissions) for the EWY position was as follows:
Stock Purchase Cost: $43,704.95
= ($54.62*800+$8.95 commission)

Net Profit:
(a) Options Income: +$2,477.25
= (800*($2.59+$1.48-$1.75+$1.50-$2.48+$1.85) - 5*$14.95 commissions)
(b) Dividend Income: +$298.41 = $.37301* 800 shares
(c) Capital Appreciation (EWY assigned at $59.00): +$3,495.05
= ($59.00-$54.62)*800 - $8.95 commissions

Total Net Profit (EWY assigned at $59.00): +$6,270.71
= (+$2,477.25 +$298.41 +$3,495.05)

Absolute Return -- EWY assigned at $59.00: +14.3%
= +$6,270.71/$43,704.95
Annualized Return: +35.9%
= (+$6,270.71/$43,704.95)*(365/146 days)


4. Morgan Stanley (MS) -- Closed
The transactions history was as follows:
03/06/2012 Bought 500 MS @ $17.35
03/06/2012 Sold 5 MS Mar2012 $17.00 Calls @ $.76
03/18/2012 Mar2012 Options Expired.
Note: the price of MS was $19.53 upon options expiration.

The overall performance result(including commissions) for this Morgan Stanley position was as follows:
Stock Purchase Cost: $8,683.95
= ($17.35*500+$8.95 commission)

Net Profit:
(a) Options Income: +$367.30
= 500*$.76 - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (MS exercised at $17.00): -$183.95
= ($17.00-$17.35)*500 - $8.95 commissions

Total Net Profit(MS assigned at $17.00): +$183.35
= (+$367.30 +$0.00 -$183.95)

Absolute Return (Stock assigned at $17.00): +2.1%
= +$183.35/$8,683.95
Annualized Return: +64.2%
= (+$183.35/$8,683.95)*(365/12 days)


5. ProShares UltraShort 20+ Years Treasury Bonds ETF (TBT) -- Closed
The transactions history was as follows:
02/16/2012 Sold 3 ProShares UltraShort 20+ Year Treasury ETF (TBT) Mar2012 $19.00 Put Options @ $.70
Note: the price of TBT was $18.94 today when these Puts were sold.
03/18/2012 Mar2012 Options Expired.
Note: the price of TBT was $20.83 upon options expiration.

The performance result(including commissions) for the TBT transactions was as follows:
100% Cash-Secured Cost Basis: $5,700.00
= $19.00*300

Net Profit:
(a) Options Income: +$198.80
= ($.70*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (TBT above $19.00 at Mar2012 expiration): +$0.00
= ($19.00-$19.00)*300

Total Net Profit(TBT above $19.00 at Mar2012 options expiration): +$198.80
= (+$198.80 +$0.00 +$0.00)

Absolute Return (TBT above $19.00 at Mar2012 options expiration and Put options thus expire worthless): +3.5%
= +$198.80/$5,700.00
Annualized Return: +41.1%
= (+$198.80/$5,700.00)*(365/31 days)

Wednesday, March 14, 2012

Overall Market Meter Rating Remains "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 is unchanged at Slightly Bullish.

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 3.88 (see blue line in chart above) is slightly higher than the 3.63 of last month. The 3.88 is a Slightly Bullish rating (range from 3.5 to 4.5), which is unchanged from the prior month. Seven of the eight factors used to determine the Overall Market Meter rating were unchanged from the prior analysis last month. The one factor that changed was Interest Rates, which went from Neutral to Bullish.

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 April 2012 options expiration this week, newly established positions for April 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

Sold 100% Cash-Secured Puts -- Potash Corp

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Potash Corp of Saskatchewan Inc.(Symbol POT) with an Apr2012 expiration.

The transaction was as follows:
03/14/2012 Sold 3 Potash Corp (POT) Apr2012 $42.50 Put Options @ $1.62
Note: the price of POT was $42.58 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 three Put options sold.

A possible overall performance results(including commissions) for this Potash Corp (POT) transaction would be as follows:
100% Cash-Secured Cost Basis: $12,750.00
= $42.50*300

Net Profit:
(a) Options Income: +$474.80
= ($1.62*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If POT above $42.50 at Apr2012 expiration): +$0.00
= ($42.50-$42.50)*300

Total Net Profit(If POT above $42.50 at Apr2012 options expiration): +$474.80
= (+$474.80 +$0.00 +$0.00)

Absolute Return (If POT above $42.50 at Apr2012 options expiration and Put options thus expire worthless): +3.7%
= +$474.80/$12,750.00
Annualized Return (If stock price above $42.50 at expiration): +35.8%
= (+$474.80/$12,750.00)*(365/38 days)

The downside 'breakeven price' at expiration is at $40.88 ($42.50 - $1.62).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2012 options expiration) for this Potash Corp.(POT) cash-secured Puts position is 67.5%. This compares with a probability of profit of 51.3% for a buy-and-hold of POT over the same time period.

The 'crossover price' at expiration is $44.12 ($42.50 + $1.62).
This is the price above which it would have been more profitable to simply buy-and-hold POT until Apr 17, 2012 (the Apr21st 2012 options expiration date) rather than holding the short Put options. The probability of exceeding this crossover price at expiration is 37.0%.

Thursday, March 8, 2012

Establish Goldcorp, Halliburton, and Mylan Covered Calls

Three new covered calls positions were established today. In each case, the stock was purchased yesterday and the calls were sold soon after the market opened this morning.
The transactions and possible results are as follows:


1. Goldcorp Inc.(GG)

The transactions were as follows:
03/07/2012 Bought 200 Goldcorp Shares @ $46.75
03/08/2012 Sold 2 GG Apr2012 $48.00 Calls @ $1.55
Note: the price of Goldcorp was $47.14 today when the calls were sold.

Two possible overall performance results(including commissions) for the Goldcorp Inc.(GG) transactions would be as follows:
Stock Purchase Cost: $9,358.95
= ($46.75*200+$8.95 commission)

Net Profit:
(a) Options Income: +$299.55
= ($1.55*200 shares) - $10.45 commissions
(b) Dividend Income (GG provides $.045 monthly dividends): +$18.00
= $.045 per share x 200 shares x 2 ex-div dates prior to Apr2012 expiration
(c) Capital Appreciation (If stock price unchanged at $46.75): -$8.95
+($46.75-$46.75)*200 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $48.00): +$241.05
+($48.00-$46.75)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at Apr2012 expiration): +$308.60
= (+$299.55 +$18.00 -$8.95)
Total Net Profit(If stock assigned at $48.00 at Apr2012 expiration): +$558.60
= (+$299.55 +$18.00 +$241.05)

1. Absolute Return (If stock price unchanged at Apr2012 expiration): +3.3%
= +$308.60/$9,358.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +27.4%
= (+$308.60/$9,358.95)*(365/44 days)

2. Absolute Return (If stock assigned at $48.00 at Apr2012 expiration): +6.0%
= +$558.60/$9,358.95
Annualized Return (If stock assigned): +49.5%
= (+$558.60/$9,358.95)*(365/44 days)


2. Halliburton Co.(HAL)
The transactions were as follows:
03/07/2012 Bought 300 Halliburton Co. Shares @ $34.02
03/08/2012 Sold 3 HAL Mar2012 $35.00 Calls @ $.48
Note: the price of Halliburton was $34.59 today when the calls were sold.

Two possible overall performance results(including commissions) for the Halliburton Co.(HAL)transactions would be as follows:
Stock Purchase Cost: $10,214.95
= ($34.02*300+$8.95 commission)

Net Profit:
(a) Options Income: +$132.80
= ($.48*300 shares) - $11.20 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $34.02): -$8.95
+($34.02-$34.02)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $35.00): +$285.05
+($35.00-$34.02)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at Mar2012 expiration): +$123.85
= (+$132.80 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $35.00 at Mar2012 expiration): +$417.85
= (+$132.80 +$0.00 +$285.05)

1. Absolute Return (If stock price unchanged at Mar2012 expiration): +1.2%
= +$123.85/$10,214.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +44.3%
= (+$123.85/$10,214.95)*(365/10 days)

2. Absolute Return (If stock assigned at $35.00 at Mar2012 expiration): +4.1%
= +$417.85/$10,214.95
Annualized Return (If stock assigned): +149.3%
= (+$417.85/$10,214.95)*(365/10 days)


3. Mylan Inc.(MYL)
The transactions were as follows:
03/07/2012 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.

Two possible overall performance results(including commissions) for the Mylan Inc.(MYL) transactions would be as follows:
Stock Purchase Cost: $11,263.95
= ($22.51*500+$8.95 commission)

Net Profit:
(a) Options Income: +$117.30
= ($.26*500 shares) - $12.70 commissions
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $22.51): -$8.95
+($22.51-$22.51)*500 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $23.00): +$236.05
+($23.00-$22.51)*500 - $8.95 commissions

Total Net Profit(If stock price unchanged at Mar2012 expiration): +$108.35
= (+$117.30 +$0.00 -$8.95)
Total Net Profit(If stock assigned at $23.00 at Mar2012 expiration): +$353.35
= (+$117.30 +$0.00 +$236.05)

1. Absolute Return (If stock price unchanged at Mar2012 expiration): +1.0%
= +$108.35/$11,263.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +35.1%
= (+$108.35/$11,263.95)*(365/10 days)

2. Absolute Return (If stock assigned at $23.00 at Mar2012 expiration): +3.1%
= +$353.35/$11,263.95
Annualized Return (If stock assigned): +114.5%
= (+$353.35/$11,263.95)*(365/10 days)

Tuesday, March 6, 2012

Establish Morgan Stanley Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Morgan Stanley (MS) covered calls as follows:

Established Morgan Stanley (MS) Covered Calls for Mar2012:
03/06/2012 Bought 500 MS @ $17.35
03/06/2012 Sold 5 MS Mar2012 $17.00 Calls @ $.76

Today, Morgan Stanley had declined by more than 5.0% when this position was established. The implied volatility in the options sold had risen to 46.9, so the options premiums had increased to a very attractive level. Because of the stock market's current spike in volatility, a somewhat conservative in-the-money position was established.

The 10-year chart below shows that Morgan Stanley is now trading at a historically low valuation relative to its book value. It is is now priced at about 50% of book value per share versus a historical norm above 100%.
Morgan Stanley Stock Chart

Morgan Stanley Stock Chart by YCharts



With Morgan Stanley's primary financial metrics now slowly improving, the stock's downside risk seems relatively small compared with its estimated 50% upside potential for the next year ($26.00 target price).

A possible overall performance result(including commissions) for this Morgan Stanley position is as follows:
Stock Purchase Cost: $8,683.95
= ($17.35*500+$8.95 commission)

Net Profit:
(a) Options Income: +$367.30
= 500*$.76 - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MS exercised at $17.00): -$183.95
= ($17.00-$17.35)*500 - $8.95 commissions

Total Net Profit(If MS exercised at $17.00): +$183.35
= (+$367.30 +$0.00 -$183.95)

Absolute Return if Assigned at $17.00: +2.1%
= +$183.35/$8,683.95
Annualized Return If Assigned (ARIA) +70.1%
= (+$183.35/$8,683.95)*(365/11 days)

The downside 'breakeven price' at expiration is at $16.59 ($17.35 - $.76).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Mar2012 options expiration) for this Morgan Stanley covered calls position is 71.9%. This compares with a probability of profit of 51.5% for a buy-and-hold of MS over the same time period.

The 'crossover price' at expiration is $17.76 ($17.00 + $.76).
This is the price above which it would have been more profitable to simply buy-and-hold MS until March 17, 2012 (the Mar2012 options expiration date) rather than establishing the covered calls position. The probability of exceeding this crossover price at expiration is 40.3%.