Wednesday, May 23, 2007

KCI - Adjustment

An adjustment was made today on KCI (see bottom of this post). This adjustment is quite complex so I'll take some time to explain it.

History:

KCI was originally purchased in Aug05 at $59.83. This is a solid company which had a virtual monopoly on it's vacuum-assisted closure (VAC) product until Medicare and Medicaid Services announced their decision to use the same reimbursement code for competitor BlueSky Medical and its own VAC product in Oct05. The stock gapped down from $56.00 to close at $34.94, or down about 38%, the following day. At this point the stock position was down about 42%.

In Mar06, I bought an additional 100 shares of KCI and now have an average cost basis, excluding option premiums, of $49.53.

Then in Aug06, KCI lost a patent infringement case against BlueSky Medical and once again the stock gapped down from $42.58 to close at $24.95, or down about 41%. At this point the stock position was down about 50%.

The Dec 35 Call options were an interim trade, meaning they were below the cost basis, and at a strike that I did not want to sell the stock. This is one strategy used to recover a losing position, but it must be monitored closely.

With less than 2 weeks until Dec expiration, the Dec 35 Calls were ITM and had only .10 time value left so the decision was made to roll out to Jun07 and up to the 40 strike to avoid assignment.

Position Summary:

Stock Investment: $9,906.00
Income Generated: $1,454.00
Percent Income Generated: 14.68%
Net Profit If Called: -$452.00
Percent Return If Called: -4.56%
Annualized Return If Called: -2.44%
Days to Expiration: 683 days

Trade History:

01-Aug-05 - Initial Stock Position - BTO 100 KCI @ 59.83
01-Aug-05 - Initial Call Option - STO 1 Aug05 60.00 Call @ 1.69
22-Aug-05 - Continued Trade - STO 1 Sep05 60.00 Call @ 1.29
19-Sep-05 - Continued Trade - STO 1 Oct05 60.00 Call @ 0.54
06-Oct-05 - Buy Back & Roll Out - BTC 1 Oct05 60.00 Call @ -0.11
25-Oct-05 - Continued Trade - STO 1 Nov05 60.00 Call @ 0.44
28-Oct-05 - Buy Back & Roll Down - BTC 1 Nov05 60.00 Call @ -0.11
28-Oct-05 - Interim Trade - STO 1 Nov05 35.00 Call @ 2.04
14-Nov-05 - Buy Back & Roll Out/Up - BTC 1 Nov05 35.00 Call @ -4.11
23-Nov-05 - Interim Trade - STO 1 Jan06 45.00 Call @ 0.69
23-Jan-06 - Interim Trade - STO 1 Feb06 45.00 Call @ 0.39
21-Feb-06 - Interim Trade - STO 1 Mar06 45.00 Call @ 0.09
20-Mar-06 - Dollar Cost Averaging - BTO 100 KCI @ 39.23
20-Mar-06 - Combined Cost Basis - $9,906.00 200 @ 49.53
20-Mar-06 - Interim Trade - STO 2 Sep06 45.00 Call @ 4.59
18-Sep-06 - Interim Trade - STO 2 Dec06 35.00 Call @ 0.94
05-Dec-06 - Buy Back & Roll Out/Up - BTC 2 Dec06 35.00 Call @ -3.69
05-Dec-06 - Interim Trade - STO 2 Jun07 40.00 Call @ 4.00

This position consists of 200 shares bought at different times and for different prices. The second purchase was at 39.23, which is below the 40 strike. I could let those 100 shares get called away for a profit, so I decided to spilt the position into 2 positions as follows:

Position #1 Summary:

Stock Investment: $5,983.00
Income Generated: $869.00
Percent Income Generated: 14.52%
Net Profit If Called: -$1,114.00
Percent Return If Called: -18.62%
Annualized Return If Called: -9.95%
Days to Expiration: 683 days

Trade History:

01-Aug-05 - Initial Stock Position - BTO 100 KCI @ 59.83 -
01-Aug-05 - Initial Call Option - STO 1 Aug05 60.00 Call @ 1.69 - Expired
22-Aug-05 - Continued Trade - STO 1 Sep05 60.00 Call @ 1.29 - Expired
19-Sep-05 - Continued Trade - STO 1 Oct05 60.00 Call @ 0.54 - Closed
06-Oct-05 - Buy Back & Roll Out - BTC 1 Oct05 60.00 Call @ -0.11 -
25-Oct-05 - Continued Trade - STO 1 Nov05 60.00 Call @ 0.44 - Closed
28-Oct-05 - Buy Back & Roll Down - BTC 1 Nov05 60.00 Call @ -0.11 -
28-Oct-05 - Interim Trade - STO 1 Nov05 35.00 Call @ 2.04 - Closed
14-Nov-05 - Buy Back & Roll Out/Up - BTC 1 Nov05 35.00 Call @ -4.11 -
23-Nov-05 - Interim Trade - STO 1 Jan06 45.00 Call @ 0.69 - Expired
23-Jan-06 - Interim Trade - STO 1 Feb06 45.00 Call @ 0.39 - Expired
21-Feb-06 - Interim Trade - STO 1 Mar06 45.00 Call @ 0.09 - Expired
20-Mar-06 - Interim Trade - STO 1 Sep06 45.00 Call @ 4.59 - Expired
18-Sep-06 - Interim Trade - STO 1 Dec06 35.00 Call @ 0.94 - Closed
05-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Dec06 35.00 Call @ -3.69 -
05-Dec-06 - Continued Trade - STO 1 Jun07 40.00 Call @ 4.00 -

Position #2 Summary:

Stock Investment: $3,823.00
Income Generated: $585.00
Percent Income Generated: 14.91%
Net Profit If Called: $662.00
Percent Return If Called: 16.87%
Annualized Return If Called: 13.63%
Days to Expiration: 452 days

Trade History:

20-Mar-06 - Dollar Cost Averaging - BTO 100 KCI @ 39.23 -
20-Mar-06 - Interim Trade - STO 1 Sep06 45.00 Call @ 4.59 - Expired
18-Sep-06 - Interim Trade - STO 1 Dec06 35.00 Call @ 0.94 - Closed
05-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Dec06 35.00 Call @ -3.69 -
05-Dec-06 - Interim Trade - STO 1 Jun07 40.00 Call @ 4.00 -

Since it's very likely that Position #2 will get called away at June expiration, resulting in a profit, I'll just let it get called away.

Position #1 needed to be adjusted to avoid assignment, which would result in a loss. So, I bought back the Jun07 40 call today for 10.21, since it was ITM with very little time value left. My plan says to roll out to a further month and up to a higher strike for a net credit. The problem was that there wasn't a higher further out strike selling for anywhere near 10.21. Normally the solution to this problem is to dollar cost average by buying an additional 100 shares of stock and selling 2 call options at 5.11 each or more. I always limit my positions to 5% or less of total capital. Doing a DCA would exceed this limit. However, since Position #2 is most likely to be called away at June expiration, I decided to temporarily exceed my 5% limit. So, I made the following adjustment:

23-May-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 40.00 Call @ -10.21 -
23-May-07 - Dollar Cost Averaging - BTO 100 KCI @ 49.87 -
23-May-07 - Combined Cost Basis - $10,970.00 200 @ 54.85 -
23-May-07 - Interim Trade - STO 2 Jan08 50.00 Call @ 6.20 -

Position #1 After Adjustment:

Stock Investment: $10,970.00
Income Generated: $1,088.50
Percent Income Generated: 9.92%
Net Profit If Called: $118.50
Percent Return If Called: 1.08%
Annualized Return If Called: 0.44%
Days to Expiration: 900 days

Trade History:

01-Aug-05 - Initial Stock Position - BTO 100 KCI @ 59.83 -
01-Aug-05 - Initial Call Option - STO 1 Aug05 60.00 Call @ 1.69 - Expired
22-Aug-05 - Continued Trade - STO 1 Sep05 60.00 Call @ 1.29 - Expired
19-Sep-05 - Continued Trade - STO 1 Oct05 60.00 Call @ 0.54 - Closed
06-Oct-05 - Buy Back & Roll Out - BTC 1 Oct05 60.00 Call @ -0.11 -
25-Oct-05 - Continued Trade - STO 1 Nov05 60.00 Call @ 0.44 - Closed
28-Oct-05 - Buy Back & Roll Down - BTC 1 Nov05 60.00 Call @ -0.11 -
28-Oct-05 - Interim Trade - STO 1 Nov05 35.00 Call @ 2.04 - Closed
14-Nov-05 - Buy Back & Roll Out/Up - BTC 1 Nov05 35.00 Call @ -4.11 -
23-Nov-05 - Interim Trade - STO 1 Jan06 45.00 Call @ 0.69 - Expired
23-Jan-06 - Interim Trade - STO 1 Feb06 45.00 Call @ 0.39 - Expired
21-Feb-06 - Interim Trade - STO 1 Mar06 45.00 Call @ 0.09 - Expired
20-Mar-06 - Interim Trade - STO 1 Sep06 45.00 Call @ 4.59 - Expired
18-Sep-06 - Interim Trade - STO 1 Dec06 35.00 Call @ 0.94 - Closed
05-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Dec06 35.00 Call @ -3.69 -
05-Dec-06 - Interim Trade - STO 1 Jun07 40.00 Call @ 4.00 - Closed
23-May-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 40.00 Call @ -10.21 -
23-May-07 - Dollar Cost Averaging - BTO 100 KCI @ 49.87 -
23-May-07 - Combined Cost Basis - $10,970.00 200 @ 54.85 -
23-May-07 - Interim Trade - STO 2 Jan08 50.00 Call @ 6.20 -

Now I could let this position get called away in Jan and end up with a very small profit or I may be able to continue with this position and get more profit out of it. Note that I've brought in almost 10% income during the holding period which has been reinvested into other positions.

This is not one of my better positions. I made a few mistakes along the way but I should still be able to get out with my initial investment and thereby preserve my capital. Some would say taking the loss and moving on to another position would be a better use of the funds, and they may be right, but who's to say that the next position would be any better. A primary goal of my trading plan is capital preservation so I do what I can to avoid losses.

Monday, May 21, 2007

WMT - Adjustment

The following adjustment was made today on WMT:

21-May-07 - Interim Trade - STO 1 Jun07 47.50 Call @ 0.59 -

Current Position Summary:

Stock Investment: $4,926.00
Income Generated: $69.00
Percent Income Generated: 1.40%
Net Profit If Called: -$107.00
Percent Return If Called: -2.17%
Annualized Return If Called: -14.96%
Days to Expiration: 53 days

Trade History:

23-Apr-07 - Initial Stock Position - BTO 100 WMT @ 49.26 - VICC
23-Apr-07 - Continued Trade - STO 1 May07 52.50 Call @ 0.10 - Expired
21-May-07 - Interim Trade - STO 1 Jun07 47.50 Call @ 0.59 -

Note that as a VICC position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. Front month OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate. The calls are sold far enough OTM to avoid assignment and the need to make any mid-month adjustments.

WGO - Adjustment

The following adjustment was made today on WGO:

21-May-07 - Continued Trade - STO 2 Jun07 35.00 Call @ 0.09 -

Current Position Summary:

Stock Investment: $6,455.00
Income Generated: $933.00
Percent Income Generated: 14.45%
Net Profit If Called: $1,478.00
Percent Return If Called: 22.90%
Annualized Return If Called: 12.01%
Days to Expiration: 696 days

Trade History:

19-Jul-05 - Initial Stock Position - BTO 100 WGO @ 34.92 -
19-Jul-05 - Initial Call Option - STO 1 Aug05 35.00 Call @ 1.09 - Expired
22-Aug-05 - Continued Trade - STO 1 Sep05 35.00 Call @ 0.44 - Closed
01-Sep-05 - Buy Back & Roll Out - BTC 1 Sep05 35.00 Call @ -0.06 -
19-Sep-05 - Continued Trade - STO 1 Nov05 35.00 Call @ 0.34 - Closed
03-Oct-05 - Dividend Received - DIV 100 Dividend @ 0.09 -
21-Oct-05 - Buy Back & Roll Down - BTC 1 Nov05 35.00 Call @ -0.06 -
24-Oct-05 - Interim Trade - STO 1 Nov05 30.00 Call @ 0.24 - Closed
14-Nov-05 - Buy Back & Roll Up - BTC 1 Nov05 30.00 Call @ -2.66 -
21-Nov-05 - Continued Trade - STO 1 Jan06 35.00 Call @ 0.99 - Expired
09-Jan-06 - Dividend Received - DIV 100 Dividend @ 0.09 -
23-Jan-06 - Continued Trade - STO 1 Mar06 35.00 Call @ 0.44 - Expired
20-Mar-06 - Dollar Cost Averaging - BTO 100 WGO @ 29.63 -
20-Mar-06 - Combined Cost Basis - $6,455.00 200 @ 32.28 -
20-Mar-06 - Continued Trade - STO 2 Jul05 35.00 Call @ 0.69 - Expired
03-Apr-06 - Dividend Received - DIV 100 Dividend @ 0.09 -
10-Jul-06 - Dividend Received - DIV 200 Dividend @ 0.09 -
24-Jul-06 - Continued Trade - STO 2 Jan07 35.00 Call @ 1.39 - Closed
09-Oct-06 - Dividend Received - DIV 200 Dividend @ 0.10 -
22-Dec-06 - Buy Back & Roll Out - BTC 2 Jan07 35.00 Call @ -0.16 -
22-Dec-06 - Continued Trade - STO 2 Apr07 35.00 Call @ 1.19 - Expired
08-Jan-07 - Dividend Received - DIV 200 Dividend @ 0.10 -
09-Apr-07 - Dividend Received - DIV 200 Dividend @ 0.10 -
23-Apr-07 - Continued Trade - STO 2 May07 35.00 Call @ 0.54 - Expired
21-May-07 - Continued Trade - STO 2 Jun07 35.00 Call @ 0.09 -

WFMI - Adjustment

The following adjustment was made today on WFMI:

21-May-07 - Interim Trade - STO 1 Jul07 45.00 Call @ 0.24 -

Current Position Summary:

Stock Investment: $4,719.00
Income Generated: $107.00
Percent Income Generated: 2.27%
Net Profit If Called: -$112.00
Percent Return If Called: -2.37%
Annualized Return If Called: -9.84%
Days to Expiration: 88 days

Trade History:

23-Apr-07 - Initial Stock Position - BTO 100 WFMI @ 47.19 - VICC
23-Apr-07 - Initial Call Option - STO 1 May07 50.00 Call @ 0.83 - Expired
21-May-07 - Interim Trade - STO 1 Jul07 45.00 Call @ 0.24 -

Note that as a VICC position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. Front month OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate. The calls are sold far enough OTM to avoid assignment and the need to make any mid-month adjustments.

UPS - Adjustment

The following adjustment was made today on UPS:

21-May-07 - Continued Trade - STO 1 Jul07 75.00 Call @ 0.39 -

Current Position Summary:

Stock Investment: $7,193.00
Income Generated: $49.00
Percent Income Generated: 0.68%
Net Profit If Called: $356.00
Percent Return If Called: 4.95%
Annualized Return If Called: 21.25%
Days to Expiration: 85 days

Trade History:

26-Apr-07 - Initial Stock Position - BTO 100 UPS @ 71.93 - VICC
26-Apr-07 - Continued Trade - STO 1 May07 75.00 Call @ 0.10 - Expired
21-May-07 - Continued Trade - STO 1 Jul07 75.00 Call @ 0.39 -

Note that as a VICC position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. Front month OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate. The calls are sold far enough OTM to avoid assignment and the need to make any mid-month adjustments.

SNDK - Adjustment

The following adjustment was made today on SNDK:

21-May-07 - Interim Trade - STO 2 Jun07 45.00 Call @ 0.98 -

Current Position Summary:

Stock Investment: $10,854.00
Income Generated: $2,739.50
Percent Income Generated: 25.24%
Net Profit If Called: $885.50
Percent Return If Called: 8.16%
Annualized Return If Called: 7.14%
Days to Expiration: 417 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 SNDK @ 59.56 -
24-Apr-06 - Initial Call Option - STO 1 Jul06 57.50 Call @ 7.09 - Closed
06-Jul-06 - Buy Back & Roll Out/Down - BTC 1 Jul06 57.50 Call @ -0.16 -
06-Jul-06 - Dollar Cost Averaging - BTO 100 SNDK @ 48.98 -
06-Jul-06 - Combined Cost Basis - $10,854.00 200 @ 54.27 -
06-Jul-06 - Continued Trade - STO 2 Oct06 55.00 Call @ 3.39 - Expired
23-Oct-06 - Continued Trade - STO 2 Jan07 55.00 Call @ 2.14 - Closed
19-Dec-06 - Buy Back & Roll Out/Down - BTC 2 Jan07 55.00 Call @ -0.16 -
19-Dec-06 - Continued Trade - STO 2 Feb07 50.00 Call @ 1.69 - Closed
06-Feb-07 - Buy Back & Roll Out/Down - BTC 2 Feb07 50.00 Call @ -0.06 -
06-Feb-07 - Interim Trade - STO 2 Apr07 45.00 Call @ 1.39 - Expired
27-Apr-07 - Interim Trade - STO 2 May07 45.00 Call @ 0.84 - Expired
21-May-07 - Interim Trade - STO 2 Jun07 45.00 Call @ 0.98 -

NTES - Adjustment

The following adjustment was made today on NTES:

21-May-07 - Interim Trade - STO 4 Jun07 20.00 Call @ 0.34 -

Current Position Summary:

Stock Investment: $9,694.00
Income Generated: $3,545.00
Percent Income Generated: 36.57%
Net Profit If Called: $1,851.00
Percent Return If Called: 19.09%
Annualized Return If Called: 15.42%
Days to Expiration: 452 days

Trade History:

20-Mar-06 - Initial Stock Position - BTO 100 NTES @ 96.94 - 4-1 Split
20-Mar-06 - Initial Call Option - STO 1 Jun06 85.00 Call @ 15.29 - 4-1 Split
28-Mar-06 - Split Stock Position - SPLT 400 NTES @ 24.24 -
28-Mar-06 - Split Call Option - SPLT 4 Jun06 21.25 Call @ 3.82 - Expired
26-Jun-06 - Continued Trade - STO 4 Jan07 22.50 Call @ 3.19 - Closed
23-Oct-06 - Buy Back & Roll Out/Down - BTC 4 Jan07 22.50 Call @ -0.16 -
23-Oct-06 - Continued Trade - STO 4 Jan07 18.75 Call @ 0.69 - Closed
17-Jan-07 - Buy Back & Roll Out/Up - BTC 4 Jan07 18.75 Call @ -0.41 -
17-Jan-07 - Continued Trade - STO 4 Mar07 20.00 Call @ 0.99 - Expired
19-Mar-07 - Interim Trade - STO 4 Apr07 20.00 Call @ 0.19 - Expired
23-Apr-07 - Interim Trade - STO 4 May07 20.00 Call @ 0.19 - Expired
21-May-07 - Interim Trade - STO 4 Jun07 20.00 Call @ 0.34 -

MDT - Adjustment

The following adjustment was made today on MDT:

21-May-07 - Continued Trade - STO 1 Jun07 52.50 Call @ 0.59 -

Current Position Summary:

Stock Investment: $5,272.00
Income Generated: $78.00
Percent Income Generated: 1.48%
Net Profit If Called: $56.00
Percent Return If Called: 1.06%
Annualized Return If Called: 7.32%
Days to Expiration: 53 days

Trade History:

23-Apr-07 - Initial Stock Position - BTO 100 MDT @ 52.72 - VICC
23-Apr-07 - Continued Trade - STO 1 May07 55.00 Call @ 0.19 - Expired
21-May-07 - Continued Trade - STO 1 Jun07 52.50 Call @ 0.59 -

Note that as a VICC position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. Front month OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate. The calls are sold far enough OTM to avoid assignment and the need to make any mid-month adjustments.

GGC - Adjustment

The following adjustment was made today on GGC:

21-May-07 - Continued Trade - STO 1 Jun07 20.00 Call @ 0.29 -

Current Position Summary:

Stock Investment: $2,054.00
Income Generated: $250.00
Percent Income Generated: 12.17%
Net Profit If Called: $196.00
Percent Return If Called: 9.54%
Annualized Return If Called: 30.55%
Days to Expiration: 114 days

Trade History:

21-Feb-07 - Initial Stock Position - BTO 100 GGC @ 20.54 -
21-Feb-07 - Initial Call Option - STO 1 May07 20.00 Call @ 2.13 - Expired
10-Apr-07 - Dividend Received - DIV 100 Dividend @ 0.08 -
21-May-07 - Continued Trade - STO 1 Jun07 20.00 Call @ 0.29 -

EXPD - Adjustment

The following adjustment was made today on EXPD:

21-May-07 - Continued Trade - STO 1 Jun07 45.00 Call @ 0.99 -

Current Position Summary:

Stock Investment: $4,515.00
Income Generated: $956.00
Percent Income Generated: 21.17%
Net Profit If Called: $941.00
Percent Return If Called: 20.84%
Annualized Return If Called: 23.48%
Days to Expiration: 324 days

Trade History:

26-Jul-06 - Initial Stock Position - BTO 100 EXPD @ 45.15 -
26-Jul-06 - Initial Call Option - STO 1 Jan07 45.00 Call @ 6.69 - Closed
22-Dec-06 - Buy Back & Roll Out - BTC 1 Jan07 45.00 Call @ -0.16 -
22-Dec-06 - Continued Trade - STO 1 May07 45.00 Call @ 2.04 - Expired
21-May-07 - Continued Trade - STO 1 Jun07 45.00 Call @ 0.99 -

CLHB - Adjustment

The following adjustment was made today on CLHB:

21-May-07 - Continued Trade - STO 1 Jun07 50.00 Call @ 0.19 -

Current Position Summary:

Stock Investment: $5,350.00
Income Generated: $585.00
Percent Income Generated: 10.93%
Net Profit If Called: $235.00
Percent Return If Called: 4.39%
Annualized Return If Called: 14.06%
Days to Expiration: 114 days

Trade History:

21-Feb-07 - Initial Stock Position - BTO 100 CLHB @ 53.50 -
21-Feb-07 - Initial Call Option - STO 1 Apr07 50.00 Call @ 5.32 - Expired
23-Apr-07 - Continued Trade - STO 1 May07 50.00 Call @ 0.34 - Expired
21-May-07 - Continued Trade - STO 1 Jun07 50.00 Call @ 0.19 -

Measuring Returns

As you may have noticed in the May 2007 results I reported 2 different measures for my returns over the past 2 years, cost basis and liquidation value.

Here's an example of the two measures.

Let's say the starting amount is $100,000, fully invested, with a period of 1 year.

Cost Basis Method - Assumes that the stocks will be sold at or above their cost basis, including income generated. In other words, no losses. This is a fairly reasonable assumption since I usually manage each position until it can be closed at a profit and have yet to close a position at a loss over the past 2 years. Now, this doesn't mean I'll never close a position at a loss, just that I haven't had to do so yet.

Cost of stock purchased = $100,000
Amount of income generated = $23,860
Total portfolio amount = $123,860
Annualized Return = 23.86%

Liquidation Method - Assumes that all positions were liquidated at the time of the calculation (i.e. buy back the short calls and sell the long stock). This is not very likely since I have no intention of liquidating these positions.

Cost of stock purchased = $100,000
Current liquidation value = $94,380
Amount of income generated = $23,860
Total portfolio amount = $118,240
Annualized Return = 18.24%

Notice that the income generated for both measures is the same. The only difference is the liquidation value.

I track the liquidation value, but since I never intend to liquidate my account, I don't pay much attention to it, but I know people will ask so I track it ;-)

The Average Monthly Returns on Invested Capital is calculated using the Cost Basis method. In otherwords, I take the amount of income generated and divide it by the amount of invested capital at the beginning of the option expiration month. It does not factor in the liquidation value of the portfolio. The reason for this is that I'm more interested in the amount of income I can generate than on the liquidation value.

It's important to track one or both of these measures to see how well my portfolio is performing against a benchmark. If I'm beating the benchmark, as I appear to be doing, regardless of which measure you look at, then it justifies continuing to trade according to my plan. If I'm not beating the benchmark, then I either need to change my plan or just invest in the benchmark index or find another investment vehicle. The first benchmark to beat of course is the risk free rate of return, as measured by T-Bills. If you can't beat that, then you're better off just buying T-Bills.

Another method that I use to compare against a benchmark is Standard Deviation of returns and Sharpe Ratio.

The standard deviation of the returns measures the volatility of the portfolio.

The Sharpe Ratio measures the risk-adjusted performance. It's calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns.

The goal here is to have a higher average return and lower standard deviation than the benchmark (i.e. low risk/high reward = higher Sharpe Ratio).

Sunday, May 20, 2007

CHS - Closed Position

The CHS May07 20.00 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $2,091.00
Income Generated: $239.00
Net Profit: $148.00
Percent Return: 7.08%
Annualized Return: 22.86%
Duration of Trade: 113 days

Buy & Hold Comparison

Opening Price: $20.91
Closing Price: $24.89
P/L per Share: $3.98
Shares: 100
Dividends: $0.00
Net Profit: $398.00
Percent Return: 19.03%
Annualized Return: 61.48%
Duration of Trade: 113 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 CHS @ 20.91 -
25-Jan-07 - Initial Call Option - STO 1 May07 20.00 Call @ 2.39 - Exercised
18-May-07 - Option Exercised - EX 1 May07 20.00 Call @ 20.00 -

Wednesday, May 9, 2007

JBHT - Closed Position

The JBHT May07 25.00 Call was exercised early on 5/08/07, the day before Ex-Dividend date, and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $7,358.00
Income Generated: $1,061.00
Net Profit: $1,203.00
Percent Return: 16.35%
Annualized Return: 13.53%
Duration of Trade: 441 days

Buy & Hold Comparison

Opening Price: $24.53
Closing Price: $28.96
P/L per Share: $4.43
Shares: 300
Dividends: $99.00
Net Profit: $1,428.00
Percent Return: 19.40%
Annualized Return: 16.02%
Duration of Trade: 441 days

Trade History:

21-Feb-06 - Initial Stock Position - BTO 300 JBHT @ 24.53 -
21-Feb-06 - Initial Call Option - STO 3 Mar06 25.00 Call @ 0.59 - Expired
20-Mar-06 - Continued Trade - STO 3 Aug06 25.00 Call @ 1.19 -
15-May-06 - Dividend Received - DIV 300 Dividend @ 0.08 -
25-Jul-06 - Buy Back & Roll Out - BTC 3 Aug06 25.00 Call @ -0.06 - Closed
25-Jul-06 - Continued Trade - STO 3 Jan07 25.00 Call @ 0.99 - Closed
18-Aug-06 - Dividend Received - DIV 300 Dividend @ 0.08 -
28-Nov-06 - Dividend Received - DIV 300 Dividend @ 0.08 -
19-Dec-06 - Buy Back & Roll Out - BTC 3 Jan07 25.00 Call @ -0.11 -
19-Dec-06 - Continued Trade - STO 3 May07 25.00 Call @ 0.59 - Exercised
21-Feb-07 - Dividend Received - DIV 300 Dividend @ 0.09 -
09-May-07 - Option Exercised - EX 3 May07 25.00 Call @ 25.00 -

Tuesday, May 1, 2007

OIC Introduces Newest Podcasts on Covered Calls

The Options Industry Council’s educational seminar, Covered Calls and Income Producing Strategies, is now available on video and audio podcasts. Starting today, you can download these podcasts to your iPod, Mp3, PDA, smartphone, or PC. As with all OIC live seminars and on-demand webcasts, these podcasts are available for FREE!

Now available:

Podcast #1: Review of Options Basics & Terminology
Podcast #2: The Covered Call Strategy: A Conceptual Overview

In these podcasts, OIC instructor Steve Meizinger of the International Securities Exchange presents a review of the basics in Podcast #1 and then, in Podcast #2, introduces the Covered Call and why an investor who is neutral to bullish on an underlying stock should consider using this popular options strategy.

Go to OIC Podcasts to download these first two podcasts.

Starting next week, a new podcast will be available for each of the next six weeks. You will receive an e-mail before the release of each podcast.

Week 2: Podcast #3: Covered Calls: Return Calculations
Week 3: Podcast #4: Common Misconceptions
Week 4: Podcast #5: Writing Short-Term Calls Against LEAPS
Week 5: Podcast #6: Selling Puts
Week 6: Podcast #7: Selling Puts: Return Calculations
Week 7: Podcast #8: Covered Combinations