EXP - Adjustment

An adjustment was made today on EXP. This is another complex adjustment so I'll take some time to explain it.

History:

EXP was originally purchased in Apr06 at $70.60. The stock started to decline right after I bought it. On May 22, 2006 the stock closed at $48.89, or down about 31%, so I averaged down by buying another 100 shares. In hindsight I should have waited, because EXP continued down before reaching a low of $32.20 in Oct06, or down about 54% from my original purchase price.

I continued to roll the options down as the price dropped and after a few adjustments I was looking at potential $708 loss if I allowed EXP to be called away at the Jul07 45 strike.

Position Summary:

Stock Investment: $11,901.00
Income Generated: $2,193.00
Percent Income Generated: 18.43%
Annualized Income Generated: 11.98%
Net Profit If Called: -$708.00
Percent Return If Called: -5.95%
Annualized Return If Called: -4.80%
Days to Expiration: 452 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 EXP @ 70.60 -
24-Apr-06 - Initial Call Option - STO 1 May06 65.00 Call @ 8.29 - Expired
22-May-06 - Dollar Cost Averaging - BTO 100 EXP @ 48.41 -
22-May-07 - Combined Cost Basis - $11,901.00 200 @ 59.51 -
22-May-06 - Continued Trade - STO 2 Oct06 60.00 Call @ 2.39 -
20-Jul-06 - Dividend Received - DIV 200 Dividend @ 0.18 -
25-Jul-06 - Buy Back & Roll Out/Down - BTC 2 Oct06 60.00 Call @ -0.20 - Closed
25-Jul-06 - Interim Trade - STO 2 Jan07 50.00 Call @ 2.20 - Closed
23-Oct-06 - Buy Back & Roll Down - BTC 2 Jan07 50.00 Call @ -0.25 -
23-Oct-06 - Interim Trade - STO 2 Jan07 40.00 Call @ 1.35 - Closed
02-Nov-06 - Dividend Received - DIV 200 Dividend @ 0.18 -
19-Dec-06 - Buy Back & Roll Out/Up - BTC 2 Jan07 40.00 Call @ -3.40 -
19-Dec-06 - Interim Trade - STO 2 Jul07 45.00 Call @ 4.40 -

This position consists of 200 shares bought at different times and for different prices. The second purchase was at 48.41. I could let the second 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: $7,060.00
Income Generated: $1,508.75
Percent Income Generated: 21.37%
Annualized Income Generated: 17.26%
Net Profit If Called: -$1,051.25
Percent Return If Called: -14.89%
Annualized Return If Called: -12.02%
Days to Expiration: 452 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 EXP @ 70.60 -
24-Apr-06 - Initial Call Option - STO 1 May06 65.00 Call @ 8.29 - Expired
22-May-06 - Continued Trade - STO 1 Oct06 60.00 Call @ 2.39 -
20-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
25-Jul-06 - Buy Back & Roll Out/Down - BTC 1 Oct06 60.00 Call @ -0.21 - Closed
25-Jul-06 - Interim Trade - STO 1 Jan07 50.00 Call @ 2.19 - Closed
23-Oct-06 - Buy Back & Roll Down - BTC 1 Jan07 50.00 Call @ -0.26 -
23-Oct-06 - Interim Trade - STO 1 Jan07 40.00 Call @ 1.34 - Closed
02-Nov-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
19-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Jan07 40.00 Call @ -3.41 -
19-Dec-06 - Interim Trade - STO 1 Jul07 45.00 Call @ 4.39 - Closed
05-Jul-07 - Buy Back & Roll Out/Up - BTC 1 Jul07 45.00 Call @ -5.41 -
05-Jul-07 - Interim Trade - STO 1 Jan08 55.00 Call @ 3.29 -

Position #2 Summary:

Stock Investment: $4,841.00
Income Generated: $679.75
Percent Income Generated: 14.04%
Annualized Income Generated: 12.09%
Net Profit If Called: $338.75
Percent Return If Called: 7.00%
Annualized Return If Called: 6.02%
Days to Expiration: 424 days

Trade History:

22-May-06 - Dollar Cost Averaging - BTO 100 EXP @ 48.41 -
22-May-06 - Continued Trade - STO 1 Oct06 60.00 Call @ 2.39 -
20-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
25-Jul-06 - Buy Back & Roll Out/Down - BTC 1 Oct06 60.00 Call @ -0.21 - Closed
25-Jul-06 - Interim Trade - STO 1 Jan07 50.00 Call @ 2.19 - Closed
23-Oct-06 - Buy Back & Roll Down - BTC 1 Jan07 50.00 Call @ -0.26 -
23-Oct-06 - Interim Trade - STO 1 Jan07 40.00 Call @ 1.34 - Closed
02-Nov-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
19-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Jan07 40.00 Call @ -3.41 -
19-Dec-06 - Interim Trade - STO 1 Jul07 45.00 Call @ 4.39 -

Since it's very likely that Position #2 will get called away at July 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 Jul07 45 call today for 5.41, 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. However, I was unable to find a further out higher strike call for more than 5.41, without doing another DCA (averaging down). I didn't want to commit more money to this position, so I decided to roll out/up to the Jan08 55 call for a net debit.

05-Jul-07 - Buy Back & Roll Out/Up - BTC 1 Jul07 45.00 Call @ -5.41
05-Jul-07 - Interim Trade - STO 1 Jan08 55.00 Call @ 3.29

Position #1 After Adjustment:

Stock Investment: $7.060.00
Income Generated: $1,297.75
Percent Income Generated: 18.37%
Annualized Income Generated: 10.57%
Net Profit If Called: -$263.25
Percent Return If Called: -3.73%
Annualized Return If Called: -2.15%
Days to Expiration: 634 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 EXP @ 70.60 -
24-Apr-06 - Initial Call Option - STO 1 May06 65.00 Call @ 8.29 - Expired
22-May-06 - Continued Trade - STO 1 Oct06 60.00 Call @ 2.39 -
20-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
25-Jul-06 - Buy Back & Roll Out/Down - BTC 1 Oct06 60.00 Call @ -0.21 - Closed
25-Jul-06 - Interim Trade - STO 1 Jan07 50.00 Call @ 2.19 - Closed
23-Oct-06 - Buy Back & Roll Down - BTC 1 Jan07 50.00 Call @ -0.26 -
23-Oct-06 - Interim Trade - STO 1 Jan07 40.00 Call @ 1.34 - Closed
02-Nov-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
19-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Jan07 40.00 Call @ -3.41 -
19-Dec-06 - Interim Trade - STO 1 Jul07 45.00 Call @ 4.39 - Closed
05-Jul-07 - Buy Back & Roll Out/Up - BTC 1 Jul07 45.00 Call @ -5.41 -
05-Jul-07 - Interim Trade - STO 1 Jan08 55.00 Call @ 3.29 -

This is an interim trade with the call option OTM. If it goes ITM it would result in a small loss if I allow it to be called away.

By making this adjustment, I reduced my total position, by allowing the second half to be called away and reduced the $1,000+ potential loss on the first half to a potential loss of $260+ if called. That's a savings of about $800. The goal now is to get out of this position with all my initial capital intact and avoid a loss, if possible.