Merry Christmas & Happy New Year

I'm still on vacation and will return next week. This is my last post for 2007. I'd like to wish everyone a very Merry Christmas and a Happy New Year.

URBN - Closed

The URBN Dec07 25.00 Call was exercised on Fri 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: $2,512.00
Income Generated: $301.00
Net Profit: $289.00
Percent Return: 11.50%
Annualized Return: 22.70%
Duration of Trade: 185 days

Buy & Hold Comparison

Opening Price: $25.12
Closing Price: $27.09
P/L per Share: $1.97
Shares: 100
Dividends: $0.00
Net Profit: $197.00
Percent Return: 7.84%
Annualized Return: 15.47%
Duration of Trade: 185 days

Trade History:

19-Jun-07 - Initial Stock Position - BTO 100 URBN @ 25.12 -
19-Jun-07 - Initial Call Option - STO 1 Dec07 25.00 Call @ 3.01 - Exercised
21-Dec-07 - Option Exercised - EX 1 Dec07 25.00 Call @ 25.00 -

NUE - Closed

The NUE Dec07 50.00 Call was exercised on Fri 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: $5,437.00
Income Generated: $539.00
Net Profit: $102.00
Percent Return: 1.88%
Annualized Return: 29.77%
Duration of Trade: 23 days

Buy & Hold Comparison

Opening Price: $54.37
Closing Price: $60.42
P/L per Share: $6.06
Shares: 100
Dividends: $0.00
Net Profit: $605.00
Percent Return: 11.13%
Annualized Return: 176.59%
Duration of Trade: 23 days

Trade History:

28-Nov-07 - Initial Stock Position - BTO 100 NUE @ 54.37 -
28-Nov-07 - Initial Call Option - STO 1 Dec07 50.00 Call @ 5.39 - Exercised
21-Dec-07 - Option Exercised - EX 1 Dec07 50.00 Call @ 50.00 -

NFLX - Closed

The NFLX Dec07 22.50 Call was exercised on Fri 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: $2,292.00
Income Generated: $444.00
Net Profit: $402.00
Percent Return: 17.54%
Annualized Return: 19.40%
Duration of Trade: 330 days

Buy & Hold Comparison

Opening Price: $22.92
Closing Price: $28.09
P/L per Share: $5.17
Shares: 100
Dividends: $0.00
Net Profit: $517.00
Percent Return: 22.56%
Annualized Return: 24.95%
Duration of Trade: 330 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 NFLX @ 22.92 -
25-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 2.49 - Expired
19-Jun-07 - Continued Trade - STO 1 Sep07 22.50 Call @ 1.09 - Expired
24-Sep-07 - Continued Trade - STO 1 Dec07 22.50 Call @ 0.86 - Exercised
21-Dec-07 - Option Exercised - EX 1 Dec07 22.50 Call @ 22.50 -

ESV - Closed

The ESV Dec07 55.00 Call was exercised on Fri 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: $5,708.00
Income Generated: $688.50
Net Profit: $480.50
Percent Return: 8.42%
Annualized Return: 36.15%
Duration of Trade: 85 days

Buy & Hold Comparison

Opening Price: $57.08
Closing Price: $57.74
P/L per Share: $0.66
Shares: 100
Dividends: $0.03
Net Profit: $69.00
Percent Return: 1.20%
Annualized Return: 5.15%
Duration of Trade: 85 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 ESV @ 57.08 -
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 3.09 - Expired
26-Oct-07 - Continued Trade - STO 1 Nov07 55.00 Call @ 2.34 - Expired
20-Nov-07 - Continued Trade - STO 1 Dec07 55.00 Call @ 1.43 - Exercised
21-Dec-07 - Dividend Received - DIV 100 Dividend @ 0.03 -
21-Dec-07 - Option Exercised - EX 1 Dec07 55.00 Call @ 55.00 -

WMT - Adjustment

The following adjustment was made today on WMT:

The Dec07 47.50 call had very little time value left, so I rolled it out and up, and a very slight credit, to avoid assignment.

11-Dec-07 - Buy Back & Roll Up - BTC 2 Dec07 47.50 Call @ -2.46 -
11-Dec-07 - Continued Trade - STO 2 Mar08 50.00 Call @ 2.46 -

Current Position Summary:

Stock Investment: $10,045.00
Income Generated: $340.90
Breakeven Price: $48.52
Percent Income Generated: 3.39%
Annualized Income Generated: 3.72%
Net Profit If Called: $295.90
Percent Return If Called: 2.95%
Annualized Return If Called: 3.23%
Days to Expiration: 333 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 - Closed
04-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 47.50 Call @ -3.81 -
04-Jun-07 - Dollar Cost Averaging - BTO 100 WMT @ 51.19 -
04-Jun-07 - Combined Cost Basis - $10,045.00 200 @ 50.23 -
04-Jun-07 - Continued Trade - STO 2 Dec07 52.50 Call @ 2.54 - Closed
24-Oct-07 - Buy Back & Roll Down - BTC 2 Dec07 52.50 Call @ -0.11
24-Oct-07 - Interim Trade - STO 2 Dec07 47.50 Call @ 0.49 - Closed
11-Dec-07 - Buy Back & Roll Up - BTC 2 Dec07 47.50 Call @ -2.46 -
11-Dec-07 - Continued Trade - STO 2 Mar08 50.00 Call @ 2.46 -

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.

On Vacation

I start vacation tomorrow so I'll be somewhat unavailable over the next
3 weeks. If I make any trades I'll try to post them when I get time. I'll also try to update my returns sometime after Dec options expiration.

Happy Holidays!

TGT - New Position

A new position was established today on TGT. The following is the trade information, including IB commissions:

28-Nov-07 - Initial Stock Position - BTO 100 TGT @ 59.37
28-Nov-07 - Initial Call Option - STO 1 Dec07 55.00 Call @ 5.66

Stock Investment: $5,937.00
Income Generated: $566.00
Percent Income Generated: 9.53%
Annualized Income Generated: 151.29%
Net Profit If Called: $129.00
Percent Return If Called: 2.17%
Annualized Return If Called: 34.48%
Days to Expiration: 23 days

NUE - New Position

A new position was established today on NUE. The following is the trade information, including IB commissions:

28-Nov-07 - Initial Stock Position - BTO 100 NUE @ 54.37
28-Nov-07 - Initial Call Option - STO 1 Dec07 50.00 Call @ 5.39

Stock Investment: $5,437.00
Income Generated: $539.00
Percent Income Generated: 9.91%
Annualized Income Generated: 157.32%
Net Profit If Called: $102.00
Percent Return If Called: 1.88%
Annualized Return If Called: 29.77%
Days to Expiration: 23 days

AXP - New Position

A new position was established today on AXP. The following is the trade information, including IB commissions:

28-Nov-07 - Initial Stock Position - BTO 100 AXP @ 56.74
28-Nov-07 - Initial Call Option - STO 1 Dec07 55.00 Call @ 3.21

Stock Investment: $5.674.00
Income Generated: $321.00
Percent Income Generated: 5.66%
Annualized Income Generated: 89.78%
Net Profit If Called: $147.00
Percent Return If Called: 2.59%
Annualized Return If Called: 41.11%
Days to Expiration: 23 days

Happy Thanksgiving!

I'd like to wish all the readers of this blog and the members of the JustCoveredCalls Yahoo Group and very Happy Thanksgiving! The response I've received from this blog and Yahoo group has been beyond my expectations. I really appreciate all the feedback and hope that the information presented has been helpful.

SNDK - Adjustment

The following adjustment was made today on SNDK:

20-Nov-07 - Continued Trade - STO 2 Dec07 40.00 Call @ 0.67

This is another position where I sold a lower strike call which would result in a small profit if called. Again, I'll monitor this one like an interim trade and roll it out/up to avoid assigned if it should be ITM at expiration.

Current Position Summary:

Stock Investment: $10,854.00
Income Generated: $3,431.70
Percent Income Generated: 31.62%
Annualized Income Generated: 19.04%
Net Profit If Called: $577.70
Percent Return If Called: 5.32%
Annualized Return If Called: 3.21%
Days to Expiration: 606 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 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 2 Jun07 45.00 Call @ -1.46 -
15-Jun-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 2.60 - Expired
22-Oct-07 - Continued Trade - STO 2 Nov07 45.00 Call @ 1.64 - Expired
20-Nov-07 - Continued Trade - STO 2 Dec07 40.00 Call @ 0.67

PLCM - Adjustment

The following adjustment was made today on PLCM:

20-Nov-07 - Continued Trade - STO 1 Dec07 30.00 Call @ 0.27

Current Position Summary:

Stock Investment: $3,164.00
Income Generated: $395.00
Percent Income Generated: 12.48%
Annualized Income Generated: 37.05%
Net Profit If Called: $231.00
Percent Return If Called: 7.30%
Annualized Return If Called: 21.67%
Days to Expiration: 123 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 PLCM @ 31.64 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 30.00 Call @ 2.55 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 30.00 Call @ 0.34 - Expired
22-Oct-07 - Continued Trade - STO 1 Nov07 30.00 Call @ 0.79 - Expired
20-Nov-07 - Continued Trade - STO 1 Dec07 30.00 Call @ 0.27

KSS - Adjustment

The following adjustment was made today on KSS:

20-Nov-07 - Continued Trade - STO 1 Dec07 50.00 Call @ 1.74

I decided to sell the Dec 50 call instead of the Dec 55 since the time value was greater. Although the position would result is a small profit if called, I'll monitor this one like an interim trade and roll it out/up to avoid assigned if it should be ITM at expiration.

Current Position Summary:

Stock Investment: $5,690.00
Income Generated: $813.00
Percent Income Generated: 14.29%
Annualized Income Generated: 61.63%
Net Profit If Called: $123.00
Percent Return If Called: 2.16%
Annualized Return If Called: 9.28%
Days to Expiration: 85 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 KSS @ 56.90 -
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 3.20 - Expired
22-Oct-07 - Continued Trade - STO 1 Nov07 55.00 Call @ 3.19 - Expired
20-Nov-07 - Continued Trade - STO 1 Dec07 50.00 Call @ 1.74

ESV - Adjustment

The following adjustment was made today on ESV:

20-Nov-07 - Continued Trade - STO 1 Dec07 55.00 Call @ 1.43

Current Position Summary:

Stock Investment: $5,708.00
Income Generated: $686.00
Percent Income Generated: 12.02%
Annualized Income Generated: 51.61%
Net Profit If Called: $478.00
Percent Return If Called: 8.37%
Annualized Return If Called: 35.96%
Days to Expiration: 85 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 ESV @ 57.08 -
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 3.09 - Expired
26-Oct-07 - Continued Trade - STO 1 Nov07 55.00 Call @ 2.34 - Expired
20-Nov-07 - Continued Trade - STO 1 Dec07 55.00 Call @ 1.43

MFLX - Closed

The MFLX Nov07 17.50 Call was exercised on Fri 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: $1,651.00
Income Generated: $159.00
Net Profit: $258.00
Percent Return: 15.63%
Annualized Return: 38.03%
Duration of Trade: 150 days

Buy & Hold Comparison

Opening Price: $16.51
Closing Price: $18.98
P/L per Share: $2.47
Shares: 100
Dividends: $0.00
Net Profit: $247.00
Percent Return: 14.96%
Annualized Return: 36.40%
Duration of Trade: 150 days

Trade History:

19-Jun-07 - Initial Stock Position - BTO 100 MFLX @ 16.51 -
19-Jun-07 - Initial Call Option - STO 1 Nov07 17.50 Call @ 1.59 - Exercised
16-Nov-07 - Option Exercised - EX 1 Nov07 17.50 Call @ 17.50 -

CLHB - Closed

The CLHB Nov07 50.00 Call was exercised on Fri 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: $5,350.00
Income Generated: $923.00
Net Profit: $573.00
Percent Return: 10.71%
Annualized Return: 14.59%
Duration of Trade: 268 days

Buy & Hold Comparison

Opening Price: $53.50
Closing Price: $54.63
P/L per Share: $1.13
Shares: 100
Dividends: $0.00
Net Profit: $113.00
Percent Return: 2.11%
Annualized Return: 2.88%
Duration of Trade: 268 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 - Expired
19-Jun-07 - Continued Trade - STO 1 Oct07 50.00 Call @ 2.49 - Expired
22-Oct-07 - Continued Trade - STO 1 Nov07 50.00 Call @ 0.89 - Exercised
11-Nov-07 - EX 1 Nov07 50.00 Call @ 50.00

GGC - Adjustment

The following adjustment was made today on GGC:

02-Nov-07 - Buy Back & Roll Down - BTC 1 Nov07 20.00 Call @ -0.06 -
02-Nov-07 - Dollar Cost Averaging - BTO 200 GGC @ 11.08 -
02-Nov-07 - Combined Cost Basis - $4,269.00 300 @ 14.23 -
02-Nov-07 - Interim Trade - STO 3 Dec07 12.50 Call @ 0.39 -

Current Position Summary:

Stock Investment: $4,269.00
Income Generated: $516.90
Percent Income Generated: 12.11%
Annualized Income Generated: 14.59%
Net Profit If Called: -$2.10
Percent Return If Called: -0.05%
Annualized Return If Called: -0.06%
Days to Expiration: 303 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 - Expired
19-Jun-07 - Continued Trade - STO 1 Nov07 20.00 Call @ 1.39 - Closed
10-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.08 -
10-Oct-07 - Dividend Received - DIV 100 Dividend @ 0.08 -
02-Nov-07 - Buy Back & Roll Down - BTC 1 Nov07 20.00 Call @ -0.06 -
02-Nov-07 - Dollar Cost Averaging - BTO 200 GGC @ 11.08 -
02-Nov-07 - Combined Cost Basis - $4,269.00 300 @ 14.23 -
02-Nov-07 - Interim Trade - STO 3 Dec07 12.50 Call @ 0.39 -

GGC is down about 46% from my original purchase price. Since I still like this company I decided to average down and buy an additional 200 shares, which still keeps me within my 5% position limit. By averaging down I reduced my cost basis in the stock from 20.54 to 14.23 (31%), so the stock is now down only 22%, instead of 46%. I sold a Dec 12.50 call, which is an interim trade, meaning it would result in a minor loss if called. My overall cost basis, including option premiums, dividends, and commissions, is now only $12.51.

BJS - Adjustment

The following adjustment was made today on BJS:

30-Oct-07 - Interim Trade - STO 3 Dec07 27.50 Call @ 0.55 -

Current Position Summary:

Stock Investment: $11,238.00
Income Generated: $2,191.65.00
Percent Income Generated: 19.50%
Annualized Income Generated: 10.24%
Net Profit If Called: -$796.35
Percent Return If Called: -7.09%
Annualized Return If Called: -3.72%
Days to Expiration: 695 days

Trade History:

25-Jan-06 - Initial Stock Position - BTO 200 BJS @ 40.05 -
25-Jan-06 - Initial Call Option - STO 2 Feb06 40.00 Call @ 1.54 - Expired
21-Feb-06 - Continued Trade - STO 2 Apr06 40.00 Call @ 0.49 - Closed
20-Mar-06 - Buy Back - BTC 2 Apr06 40.00 Call @ -0.11 -
20-Mar-06 - Dollar Cost Averaging - BTO 100 BJS @ 32.29 -
20-Mar-06 - Combined Cost Basis - $11,238.00 300 @ 37.46 -
20-Mar-06 - Continued Trade - STO 3 Jul05 37.50 Call @ 0.94 - Expired
14-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.15 -
24-Jul-06 - Interim Trade - STO 3 Oct06 35.00 Call @ 1.19 -
13-Oct-06 - Dividend Received - DIV 300 Dividend @ 0.05 -
23-Oct-06 - Interim Trade - STO 3 Jan07 35.00 Call @ 0.79 -
22-Dec-06 - Buy Back & Roll Out - BTC 3 Jan07 35.00 Call @ -0.11 - Closed
22-Dec-06 - Continued Trade - STO 3 Jul07 35.00 Call @ 1.66 - Closed
12-Jan-07 - Dividend Received - DIV 300 Dividend @ 0.05 -
13-Apr-07 - Dividend Received - DIV 300 Dividend @ 0.05 -
21-Jun-07 - Buy Back & Roll Out/Down - BTC 3 Jul07 35.00 Call @ -0.11 - Closed
21-Jun-07 - Interim Trade - STO 3 Oct07 32.50 Call @ 0.79 - Expired
13-Jul-07 - Dividend Received - DIV 300 Dividend @ 0.05 -
12-Oct-07 - Dividend Received - DIV 300 Dividend @ 0.05 -
30-Oct-07 - Interim Trade - STO 3 Dec07 27.50 Call @ 0.55 -

ESV - Adjustment

The following adjustment was made today on ESV:

26-Oct-07 - Continued Trade - STO 1 Nov07 55.00 Call @ 2.34 -

Current Position Summary:

Stock Investment: $5,708.00
Income Generated: $543.00
Percent Income Generated: 9.51%
Annualized Income Generated: 69.44%
Net Profit If Called: $335.00
Percent Return If Called: 5.87%
Annualized Return If Called: 42.54%
Days to Expiration: 50 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 ESV @ 57.08 -
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 3.09 - Expired
26-Oct-07 - Continued Trade - STO 1 Nov07 55.00 Call @ 2.34 -

PFCB - Adjustment

The following adjustment was made today on PFCB:

25-Oct-07 - Continued Trade - STO 1 Jan08 35.00 Call @ 0.22 -

Current Position Summary:

Stock Investment: $3,578.00
Income Generated: $291.00
Percent Income Generated: 8.13%
Annualized Income Generated: 19.66%
Net Profit If Called: $213.00
Percent Return If Called: 5.95%
Annualized Return If Called: 14.39%
Days to Expiration: 151 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 PFCB @ 35.78 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 35.00 Call @ 2.30 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 35.00 Call @ 0.39 - Expired
25-Oct-07 - Continued Trade - STO 1 Jan08 35.00 Call @ 0.22 -

MCO - Adjustment

The following adjustment was made today on MCO:

25-Oct-07 - Dollar Cost Averaging - BTO 100 MCO @ 44.08 -
25-Oct-07 - Combined Cost Basis - $10,649.00 200 @ 53.25 -
25-Oct-07 - Continued Trade - STO 2 Dec07 55.00 Call @ 0.29 -

Current Position Summary:

Stock Investment: $10,649.00
Income Generated: $682.60
Percent Income Generated: 6.41%
Annualized Income Generated: 13.29%
Net Profit If Called: $1,033.60
Percent Return If Called: 9.71%
Annualized Return If Called: 20.13%
Days to Expiration: 176 days

Trade History:

28-Jun-07 - Initial Stock Position - BTO 100 MCO @ 62.41 -
28-Jun-07 - Initial Call Option - STO 1 Jul07 60.00 Call @ 3.49 - Expired
25-Jul-07 - Continued Trade - STO 1 Aug07 60.00 Call @ 1.54 - Expired
20-Aug-07 - Interim Trade - STO 1 Sep07 55.00 Call @ 0.89 - Expired
10-Sep-07 - Dividend Received - DIV 100 Dividend @ 0.08 -
24-Sep-07 - Interim Trade - STO 1 Oct07 55.00 Call @ 0.24 - Expired
25-Oct-07 - Dollar Cost Averaging - BTO 100 MCO @ 44.08 -
25-Oct-07 - Combined Cost Basis - $10,649.00 200 @ 53.25 -
25-Oct-07 - Continued Trade - STO 2 Dec07 55.00 Call @ 0.29 -

LM - Adjustment

The following adjustment was made today on LM:

25-Oct-07 - Continued Trade - STO 1 Dec07 85.00 Call @ 2.09 -

Current Position Summary:

Stock Investment: $9,109.00
Income Generated: $838.00
Percent Income Generated: 9.20%
Annualized Income Generated: 22.84%
Net Profit If Called: $229.00
Percent Return If Called: 2.51%
Annualized Return If Called: 6.24%
Days to Expiration: 147 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 LM @ 91.09 -
27-Jul-07 - Initial Call Option - STO 1 Aug07 90.00 Call @ 3.49 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 90.00 Call @ 2.09 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 90.00 Call @ 0.47 - Expired
15-Oct-07 - Dividend Received - DIV 100 Dividend @ 0.24 -
25-Oct-07 - Continued Trade - STO 1 Dec07 85.00 Call @ 2.09 -

WMT - Adjustment

The following adjustment was made today on WMT:

24-Oct-07 - Buy Back & Roll Down - BTC 2 Dec07 52.50 Call @ -0.11
24-Oct-07 - Interim Trade - STO 2 Dec07 47.50 Call @ 0.49

Current Position Summary:

Stock Investment: $10,045.00
Income Generated: $339.70
Percent Income Generated: 3.38%
Annualized Income Generated: 5.10%
Net Profit If Called: -$205.30
Percent Return If Called: -2.04%
Annualized Return If Called: -3.08%
Days to Expiration: 242 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 - Closed
04-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 47.50 Call @ -3.81 -
04-Jun-07 - Dollar Cost Averaging - BTO 100 WMT @ 51.19 -
04-Jun-07 - Combined Cost Basis - $10,045.00 200 @ 50.23 -
04-Jun-07 - Continued Trade - STO 2 Dec07 52.50 Call @ 2.54 - Closed
24-Oct-07 - Buy Back & Roll Down - BTC 2 Dec07 52.50 Call @ -0.11
24-Oct-07 - Interim Trade - STO 2 Dec07 47.50 Call @ 0.49

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:

24-Oct-07 - Continued Trade - STO 1 Dec07 80.00 Call @ 0.35

Current Position Summary:

Stock Investment: $7,193.00
Income Generated: $201.00
Percent Income Generated: 2.79%
Annualized Income Generated: 4.27%
Net Profit If Called: $1,008.00
Percent Return If Called: 14.01%
Annualized Return If Called: 21.40%
Days to Expiration: 239 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 - Closed
05-Jun-07 - Dividend Received - DIV 100 Dividend @ 0.42 -
18-Jul-07 - Buy Back & Roll Out/Up - BTC 1 Jul07 75.00 Call @ -0.56 -
18-Jul-07 - Continued Trade - STO 1 Oct07 80.00 Call @ 0.89 -
24-Oct-07 - Continued Trade - STO 1 Dec07 80.00 Call @ 0.35

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.

MDT - Adjustment

The following adjustment was made today on MDT:

24-Oct-07 - Buy Back & Roll Down - BTC 1 Nov07 57.50 Call @ -0.06 -
24-Oct-07 - Continued Trade - STO 1 Dec07 52.50 Call @ 0.39 -

Current Position Summary:

Stock Investment: $5,272.00
Income Generated: $222.50
Percent Income Generated: 4.22%
Annualized Income Generated: 6.37%
Net Profit If Called: $200.50
Percent Return If Called: 3.80%
Annualized Return If Called: 5.74%
Days to Expiration: 242 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 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 52.50 Call @ -0.06
15-Jun-07 - Initial Call Option - STO 1 Jul07 55.00 Call @ 0.49 - Expired
25-Jul-07 - Continued Trade - STO 1 Sep07 55.00 Call @ 0.63 - Closed
27-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.13
21-Sep-07 - Buy Back & Roll Out/Up - BTC 1 Sep07 55.00 Call @ -1.46
21-Sep-07 - Continued Trade - STO 1 Nov07 57.50 Call @ 1.39 - Closed
24-Oct-07 - Buy Back & Roll Down - BTC 1 Nov07 57.50 Call @ -0.06 -
24-Oct-07 - Continued Trade - STO 1 Dec07 52.50 Call @ 0.39 -

Note that as a Value Investing Covered Call (VICC) position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate.

EXP - Adjustment

The following adjustment was made today on EXP:

24-Oct-07 - Buy Back & Roll Down - BTC 1 Jan08 55.00 Call @ -0.16 -
24-Oct-07 - Dollar Cost Averaging - BTO 100 EXP @ 37.94 -
24-Oct-07 - Combined Cost Basis - $10,856.00 200 @ 54.28 -
24-Oct-07 - Interim Trade - STO 2 Jan08 45.00 Call @ 0.69 -

Current Position Summary:

Stock Investment: $10,854.00
Income Generated: $1,439.35
Percent Income Generated: 13.26%
Annualized Income Generated: 7.63%
Net Profit If Called: -$414.65
Percent Return If Called: -3.82%
Annualized Return If Called: -2.20%
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 - Closed
20-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.20 -
24-Oct-07 - Buy Back & Roll Down - BTC 1 Jan08 55.00 Call @ -0.16 -
24-Oct-07 - Dollar Cost Averaging - BTO 100 EXP @ 37.94 -
24-Oct-07 - Combined Cost Basis - $10,856.00 200 @ 54.28 -
24-Oct-07 - Interim Trade - STO 2 Jan08 45.00 Call @ 0.69 -

EXP is down about 46% from my original purchase price. Again, I still like the company so I decided to average down. By averaging down I reduced my cost basis from 70.66 to 54.28 (23%), so the stock is now down only 30%, instead of 46%, from my average cost basis. I then sold a Jan 45.00, which is an interim trade, meaning I don't want to let the stock get called away at this price since it'll result in a loss.

CHS - Adjustment

The following adjustment was made today on CHS:

24-Oct-07 - Buy Back - BTC 1 Nov07 25.00 Call @ -0.04 -
24-Oct-07 - Dollar Cost Averaging - BTO 200 CHS @ 12.66 -
24-Oct-07 - Combined Cost Basis - $5,042.00 300 @ 16.81 -
24-Oct-07 - Interim Trade - STO 3 Dec07 15.00 Call @ 0.39 - Expired

Current Position Summary:

Stock Investment: $5,042.00
Income Generated: $374.90
Percent Income Generated: 7.44%
Annualized Income Generated: 14.67%
Net Profit If Called: -$167.10
Percent Return If Called: -3.31%
Annualized Return If Called: -6.54%
Days to Expiration: 185 days

Trade History:

19-Jun-07 - Initial Stock Position - BTO 100 CHS @ 25.11 -
19-Jun-07 - Initial Call Option - STO 1 Nov07 25.00 Call @ 2.61 - Closed
24-Oct-07 - Buy Back - BTC 1 Nov07 25.00 Call @ -0.04 -
24-Oct-07 - Dollar Cost Averaging - BTO 200 CHS @ 12.66 -
24-Oct-07 - Combined Cost Basis - $5,042.00 300 @ 16.81 -
24-Oct-07 - Interim Trade - STO 3 Dec07 15.00 Call @ 0.39 -

CHS is down about 50% from my original purchase price. Since I still like this company I decided to average down and buy an additional 200 shares, which still keeps me within my 5% position limit. By averaging down I reduced my cost basis from 25.11 to 16.81 (33%), so the stock is now down only 33%, instead of 50%, from my average cost basis. I then sold a Dec 15.00, which is an interim trade, meaning I don't want to let the stock get called away at this price since it'll result in a loss.

This is one reason why I start with small positions and don't commit the entire 5% of capital to a position in the beginning. If a stock declines I can then average down up to the 5% limit, which reduces my cost basis.

WFMI - Adjustment

The following adjustment was made today on WFMI:

22-Oct-07 - Continued Trade - STO 2 Dec07 50.00 Call @ 2.64 -

Current Position Summary:

Stock Investment: $8,563.00
Income Generated: $798.00
Percent Income Generated: 9.32%
Annualized Income Generated: 14.06%
Net Profit If Called: $2,235.00
Percent Return If Called: 26.10%
Annualized Return If Called: 39.37%
Days to Expiration: 242 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 - Closed
21-Jun-07 - Buy Back and Roll Out - BTC 1 Jul07 45.00 Call @ -0.03 -
21-Jun-07 - Dollar Cost Averaging - BTO 100 WFMI @ 38.44 -
21-Jun-07 - Combined Cost Basis - $8,563.00 200 @ 42.82 -
21-Jun-07 - Continued Trade - STO 2 Aug07 45.00 Call @ 0.29 - Expired
24-Jul-07 - Dividend Received - DIV 200 Dividend @ 0.18 -
20-Aug-07 - Continued Trade - STO 2 Sep07 50.00 Call @ 0.20 - Expired
24-Sep-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 0.16 - Expired
22-Oct-07 - Continued Trade - STO 2 Dec07 50.00 Call @ 2.64 -

Note that as a Value Investing Covered Call (VICC) position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate.

SNDK - Adjustment

The following adjustment was made today on SNDK:

22-Oct-07 - Continued Trade - STO 2 Nov07 45.00 Call @ 1.64 -

Current Position Summary:

Stock Investment: $10,854.00
Income Generated: $3,297.10
Percent Income Generated: 30.38%
Annualized Income Generated: 19.42%
Net Profit If Called: $1,443.10
Percent Return If Called: 13.30%
Annualized Return If Called: 8.50%
Days to Expiration: 571 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 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 2 Jun07 45.00 Call @ -1.46 -
15-Jun-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 2.60 - Expired
22-Oct-07 - Continued Trade - STO 2 Nov07 45.00 Call @ 1.64 -

PLCM - Adjustment

The following adjustment was made today on PLCM:

22-Oct-07 - Continued Trade - STO 1 Nov07 30.00 Call @ 0.79 -

Current Position Summary:

Stock Investment: $3,164.00
Income Generated: $368.00
Percent Income Generated: 11.63%
Annualized Income Generated: 48.24%
Net Profit If Called: $204.00
Percent Return If Called: 6.45%
Annualized Return If Called: 26.74%
Days to Expiration: 88 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 PLCM @ 31.64 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 30.00 Call @ 2.55 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 30.00 Call @ 0.34 - Expired
22-Oct-07 - Continued Trade - STO 1 Nov07 30.00 Call @ 0.79 -

MM - Closed

The MM position was closed today for a loss. I made an error in judgement on the MM position by neglecting to check the news before establishing the position. MM is being acquired by SIMYY. The Oct07 55.00 call ended OTM on Friday so I decided to sell the stock today since I don't want to hold companies that are being acquired. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $5,543.00
Income Generated: $209.00
Net Profit: -$38.00
Percent Return: -0.69%
Annualized Return: -10.01%
Duration of Trade: 25 days

Buy & Hold Comparison

Opening Price: $55.43
Closing Price: $52.96
P/L per Share: -$2.47
Shares: 100
Dividends: $0.00
Net Profit: -$247.00
Percent Return: -4.46%
Annualized Return: -65.06%
Duration of Trade: 25 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 MM @ 55.43 - Closed
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 2.09 - Expired
22-Oct-07 - Close Position - STC 1 Closed @ 52.96 -

KSS - Adjustment

The following adjustment was made today on KSS:

22-Oct-07 - Continued Trade - STO 1 Nov07 55.00 Call @ 3.19 -

Current Position Summary:

Stock Investment: $5,690.00
Income Generated: $639.00
Percent Income Generated: 11.23%
Annualized Income Generated: 81.98%
Net Profit If Called: $449.00
Percent Return If Called: 7.89%
Annualized Return If Called: 57.60%
Days to Expiration: 50 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 KSS @ 56.90 -
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 3.20 - Expired
22-Oct-07 - Continued Trade - STO 1 Nov07 55.00 Call @ 3.19 -

CLHB - Adjustment

The following adjustment was made today on CLHB:

22-Oct-07 - Continued Trade - STO 1 Nov07 50.00 Call @ 0.89 -

Current Position Summary:

Stock Investment: $5,350.00
Income Generated: $923.00
Percent Income Generated: 17.25%
Annualized Income Generated: 23.50%
Net Profit If Called: $573.00
Percent Return If Called: 10.71%
Annualized Return If Called: 14.59%
Days to Expiration: 268 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 - Expired
19-Jun-07 - Continued Trade - STO 1 Oct07 50.00 Call @ 2.49 - Expired
22-Oct-07 - Continued Trade - STO 1 Nov07 50.00 Call @ 0.89 -

TGT - Closed

The TGT Oct07 60.00 Call was exercised on Fri 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: $6,213.00
Income Generated: $334.00
Net Profit: $121.00
Percent Return: 1.95%
Annualized Return: 32.31%
Duration of Trade: 22 days

Buy & Hold Comparison

Opening Price: $62.13
Closing Price: $60.76
P/L per Share: -$1.37
Shares: 100
Dividends: $0.00
Net Profit: -$137.00
Percent Return: -2.21%
Annualized Return: -36.58%
Duration of Trade: 22 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 TGT @ 62.13 -
27-Sep-07 - Initial Call Option - STO 1 Oct07 60.00 Call @ 3.34 - Exercised
19-Oct-07 - Option Exercised - EX 1 Oct07 60.00 Call @ 60.00 -

NKE - Closed

The NKE Oct07 57.50 Call was exercised on Fri 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: $5,814.00
Income Generated: $170.00
Net Profit: $106.00
Percent Return: 1.82%
Annualized Return: 30.25%
Duration of Trade: 22 days

Buy & Hold Comparison

Opening Price: $58.14
Closing Price: $63.32
P/L per Share: $5.18
Shares: 100
Dividends: $0.00
Net Profit: $518.00
Percent Return: 8.91%
Annualized Return: 147.82%
Duration of Trade: 22 days

Trade History:

27-Sep-07 - Initial Stock Position - BTO 100 NKE @ 58.14 -
27-Sep-07 - Initial Call Option - STO 1 Oct07 57.50 Call @ 1.70 - Exercised
19-Oct-07 - Option Exercised - EX 1 Oct07 57.50 Call @ 57.50 -

KOMG - Closed

The KOMG position was closed today for a profit. KOMG was acquired by Western Digital for $32.25/share. The acquisition completed and the stock was sold today at the offer price. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $10,638.00
Income Generated: $1,620.25
Net Profit: $657.25
Percent Return: 6.18%
Annualized Return: 4.01%
Duration of Trade: 562 days

Buy & Hold Comparison

Opening Price: $49.87
Closing Price: $32.25
P/L per Share: -$17.62
Shares: 100
Dividends: $0.00
Net Profit: -$1,762.00
Percent Return: -35.33%
Annualized Return: -22.95%
Duration of Trade: 562 days

Trade History:

20-Mar-06 - Initial Stock Position - BTO 100 KOMG @ 49.87 - Closed
20-Mar-06 - Initial Call Option - STO 1 Apr06 45.00 Call @ 5.93 - Expired
24-Apr-06 - Continued Trade - STO 1 Jun06 45.00 Call @ 2.79 - Expired
26-Jun-06 - Continued Trade - STO 1 Dec06 45.00 Call @ 4.89 - Expired
18-Dec-06 - Continued Trade - STO 1 Jun07 45.00 Call @ 2.69 - Closed
19-Mar-07 - Buy Back - BTC 1 Jun07 45.00 Call @ -0.11 -
19-Mar-07 - Dollar Cost Averaging - BTO 100 KOMG @ 31.64 - Closed
19-Mar-07 - Combined Cost Basis - $8,151.00 200 @ 40.76 -
19-Mar-07 - Continued Trade - STO 2 Jun07 35.00 Call @ 1.29 - Expired
19-Jun-07 - Dollar Cost Averaging - BTO 100 KOMG @ 24.87 -
19-Jun-07 - Combined Cost Basis - $10,638.00 300 @ 35.46 -
19-Jun-07 - Interim Trade - STO 3 Dec07 30.00 Call @ 1.39 - Closed
07-Sep-07 - Closed by Merger - BTC 3 Dec07 30.00 Call @ -2.25 -
03-Oct-07 - Closed by Merger - STC 300 Closed @ 32.25 -

This was one of my oldest positions, and not one of my best. Yet, it still closed at a profit even though the stock declined by over 35% and the company was acquired. This shows the benefit of a covered call over buy & hold on a declining stock. The end result was a small annualized gain, not much better than a money market account. But just like a money market account all my capital was returned plus a small profit. Not great, but not bad either.

A Record Month

September set a new monthly record with 1310 visitors and 2452 page views to this blog and 89 new members joining the JustCoveredCalls Yahoo group. Awesome!

I established this blog and discussion group to help educate people on covered calls by allowing them to follow an actual portfolio. There's a lot of misinformation out there on covered calls, both pro and con. I decided to put my money where my mouth is and show people what a real covered call portfolio can do, good or bad. I'm not trying to convince anyone that covered calls are best or that my method is best. This is just one method of investing. There are many others. But by watching my portfolio, reading my blog posts, and participating in the discussion group, hopefully, some people will benefit from the information.

If you've found this blog and discussion group useful, then spread the word. The more people we have to share ideas the more benefit for all of us. I don't claim to be an expert, just a student and practitioner of covered calls. The discussions have been beneficial to me also, since they provide a different perspective.

I'd like to thank everyone for their encouragement and support. This has been a very rewarding experience so far, and I hope it continues far into the future.

Calculating Covered Call Returns

In this article I'll describe the math used to calculate covered call (CC) returns.

Let's use the NKE position I opened last week as an example. Prices include commissions.

27-Sep-07 - Initial Stock Position - BTO 100 NKE @ 58.14
27-Sep-07 - Initial Call Option - STO 1 Oct07 57.50 Call @ 1.70

Stock Investment: $5,814.00
Income Generated: $170.00
Percent Income Generated: 2.92%
Annualized Income Generated: 48.51%
Net Profit If Called: $106.00
Percent Return If Called: 1.82%
Annualized Return If Called: 30.25%
Days to Expiration: 22 days

Here's the calculations:

Stock Investment: Stock Price * Number of Shares
Stock Investment: 58.14 * 100 = 5,814.00

Income Generated: Option Premium * Number of Shares
Income Generated: 1.70 * 100 = 170.00

Percent Income Generated: Income Generated / Stock Investment
Percent Income Generated: 170.00 / 5,814.00 = 2.92% (rounded)

Annualized Income Generated: Percent Income Generated / Days to Expiration * 365
Annualized Income Generated: 2.92% / 22 * 365 = 48.45% (approx).

Net Profit If Called: (Strike Price * Number of Shares) + Income Generated - Stock Investment
Net Profit If Called: (57.50 * 100) + 170.00 - 5,814 = 106.00

Percent Return If Called: Net Profit If Called / Stock Investment
Percent Return If Called: 106.00 / 5,814.00 = 1.82% (rounded)

Annualized Return If Called: Percent Return If Called / Days to Expiration * 365
Annualized Return If Called: 1.82% / 22 * 365 = 30.20% (approx.)

Now, some services and investors calculate the returns based on the net cost basis rather than the stock investment. To me, this is double counting the income generated. Here's an example:

Stock Investment: $5,814.00
Income Generated: $170.00
Net Cost Basis: $5,644.00
Net Profit If Called: $106.00

Percent Return If Called: 106.00 / 5,644.00 = 1.88%
Annualized Return If Called: 1.88% / 22 * 365 = 31.19%

As you can see using net cost basis inflates the returns, falsely I believe, but many services use this method of calculating returns. I'll stick with my method since I believe it more accurately reflects the returns.

Also note that income generated also includes dividends, if any. If you close a position early, just subtract the purchase price of the option from the income generated and substitute the sales price of the stock for the strike price.

That's all there is to it. Just simple math, not rocket science ;-)

MM - Update

Here's an example of what can happen when you don't do all the research before establishing a position.

I was up late the night before looking for new positions and didn't research this one as good as I should have. I was very tired and just wanted to get this over with so I can go to bed. As it turns out, MM is being acquired by SIMYY. I usually avoid takeover stocks and would not have established this position had I done the research. Oops!

Fortunately it's a short-term position (only 22 days to expiration) and will most likely get called away. If not, I'll probably close it at expiration or sooner.

Lesson learned! From now on, no more late night analysis and no shortcuts. All new positions need to be thoroughly researched, including the current company news, before establishing them.

TGT - New Position

A new position was established today on TGT. The following is the trade information, including IB commissions:

27-Sep-07 - Initial Stock Position - BTO 100 TGT @ 62.13
27-Sep-07 - Initial Call Option - STO 1 Oct07 60.00 Call @ 3.34

Stock Investment: $6,213.00
Income Generated: $334.00
Percent Income Generated: 5.38%
Annualized Income Generated: 89.19%
Net Profit If Called: $121.00
Percent Return If Called: 1.95%
Annualized Return If Called: 32.31%
Days to Expiration: 22 days

NKE - New Position

A new position was established today on NKE. The following is the trade information, including IB commissions:

27-Sep-07 - Initial Stock Position - BTO 100 NKE @ 58.14
27-Sep-07 - Initial Call Option - STO 1 Oct07 57.50 Call @ 1.70

Stock Investment: $5,814.00
Income Generated: $170.00
Percent Income Generated: 2.92%
Annualized Income Generated: 48.51%
Net Profit If Called: $106.00
Percent Return If Called: 1.82%
Annualized Return If Called: 30.25%
Days to Expiration: 22 days

MM - New Position

A new position was established today on MM. The following is the trade information, including IB commissions:

27-Sep-07 - Initial Stock Position - BTO 100 MM @ 55.43
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 2.09

Stock Investment: $5,543.00
Income Generated: $209.00
Percent Income Generated: 3.77%
Annualized Income Generated: 62.56%
Net Profit If Called: $166.00
Percent Return If Called: 2.99%
Annualized Return If Called: 49.69%
Days to Expiration: 22 days

KSS - New Position

A new position was established today on KSS. The following is the trade information, including IB commissions:

27-Sep-07 - Initial Stock Position - BTO 100 KSS @ 56.90
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 3.20

Stock Investment: $5,690.00
Income Generated: $320.00
Percent Income Generated: 5.62%
Annualized Income Generated: 93.31%
Net Profit If Called: $130.00
Percent Return If Called: 2.28%
Annualized Return If Called: 37.91%
Days to Expiration: 22 days

ESV - New Position

A new position was established today on ESV. The following is the trade information, including IB commissions:

27-Sep-07 - Initial Stock Position - BTO 100 ESV @ 57.08
27-Sep-07 - Initial Call Option - STO 1 Oct07 55.00 Call @ 3.09

Stock Investment: $5,708.00
Income Generated: $309.00
Percent Income Generated: 5.41%
Annualized Income Generated: 89.81%
Net Profit If Called: $101.00
Percent Return If Called: 1.77%
Annualized Return If Called: 29.36%
Days to Expiration: 22 days

WFMI - Adjustment

The following adjustment was made today on WFMI:

24-Sep-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 0.16 -

Current Position Summary:

Stock Investment: $8,563.00
Income Generated: $271.00
Percent Income Generated: 3.16%
Annualized Income Generated: 6.45%
Net Profit If Called: $1,708.00
Percent Return If Called: 19.95%
Annualized Return If Called: 40.67%
Days to Expiration: 179 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 - Closed
21-Jun-07 - Buy Back and Roll Out - BTC 1 Jul07 45.00 Call @ -0.03 -
21-Jun-07 - Dollar Cost Averaging - BTO 100 WFMI @ 38.44 -
21-Jun-07 - Combined Cost Basis - $8,563.00 200 @ 42.82 -
21-Jun-07 - Continued Trade - STO 2 Aug07 45.00 Call @ 0.29 - Expired
24-Jul-07 - Dividend Received - DIV 200 Dividend @ 0.18 -
20-Aug-07 - Continued Trade - STO 2 Sep07 50.00 Call @ 0.20 - Expired
24-Sep-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 0.16 -


Note that as a Value Investing Covered Call (VICC) position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate.

PLCM - Adjustment

The following adjustment was made today on PLCM:

24-Sep-07 - Continued Trade - STO 1 Oct07 30.00 Call @ 0.34 -

Current Position Summary:

Stock Investment: $3,164.00
Income Generated: $289.00
Percent Income Generated: 9.13%
Annualized Income Generated: 55.57%
Net Profit If Called: $125.00
Percent Return If Called: 3.95%
Annualized Return If Called: 24.03%
Days to Expiration: 60 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 PLCM @ 31.64 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 30.00 Call @ 2.55 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 30.00 Call @ 0.34 -

PFCB - Adjustment

The following adjustment was made today on PFCB:

24-Sep-07 - Continued Trade - STO 1 Oct07 35.00 Call @ 0.39 -

Current Position Summary:

Stock Investment: $3,578.00
Income Generated: $269.00
Percent Income Generated: 7.52%
Annualized Income Generated: 45.74%
Net Profit If Called: $191.00
Percent Return If Called: 5.34%
Annualized Return If Called: 32.47%
Days to Expiration: 60 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 PFCB @ 35.78 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 35.00 Call @ 2.30 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 35.00 Call @ 0.39 -

NTES - Adjustment

The following adjustment was made today on NTES:

24-Sep-07 - Continued Trade - STO 4 Dec07 20.00 Call @ 0.67 -

Current Position Summary:

Stock Investment: $9,694.00
Income Generated: $3,943.00
Percent Income Generated: 40.67%
Annualized Income Generated: 23.16%
Net Profit If Called: $2,249.00
Percent Return If Called: 23.20%
Annualized Return If Called: 13.21%
Days to Expiration: 641 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 - Expired
19-Jun-07 - Interim Trade - STO 4 Sep07 20.00 Call @ 0.32 - Expired
24-Sep-07 - Continued Trade - STO 4 Dec07 20.00 Call @ 0.67 -

NFLX - Adjustment

The following adjustment was made today on NFLX:

24-Sep-07 - Continued Trade - STO 1 Dec07 22.50 Call @ 0.86 -

Current Position Summary:

Stock Investment: $2,292.00
Income Generated: $444.00
Percent Income Generated: 19.37%
Annualized Income Generated: 21.43%
Net Profit If Called: $402.00
Percent Return If Called: 17.40%
Annualized Return If Called: 19.40%
Days to Expiration: 330 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 NFLX @ 22.92 -
25-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 2.49 - Expired
19-Jun-07 - Continued Trade - STO 1 Sep07 22.50 Call @ 1.09 - Expired
24-Sep-07 - Continued Trade - STO 1 Dec07 22.50 Call @ 0.86 -

MCO - Adjustment

The following adjustment was made today on MCO:

24-Sep-07 - Interim Trade - STO 1 Oct07 55.00 Call @ 0.24 -

Current Position Summary:

Stock Investment: $6,241.00
Income Generated: $624.00
Percent Income Generated: 10.00%
Annualized Income Generated: 32.30%
Net Profit If Called: -$117.00
Percent Return If Called: -1.87%
Annualized Return If Called: -6.06%
Days to Expiration: 113 days

Trade History:

28-Jun-07 - Initial Stock Position - BTO 100 MCO @ 62.41 -
28-Jun-07 - Initial Call Option - STO 1 Jul07 60.00 Call @ 3.49 - Expired
25-Jul-07 - Continued Trade - STO 1 Aug07 60.00 Call @ 1.54 - Expired
20-Aug-07 - Interim Trade - STO 1 Sep07 55.00 Call @ 0.89 - Expired
10-Sep-07 - Dividend Received - DIV 100 Dividend @ 0.08 -
24-Sep-07 - Interim Trade - STO 1 Oct07 55.00 Call @ 0.24 -

LM - Adjustment

The following adjustment was made today on LM:

24-Sep-07 - Continued Trade - STO 1 Oct07 90.00 Call @ 0.47 -

Current Position Summary:

Stock Investment: $9,109.00
Income Generated: $605.00
Percent Income Generated: 6.64%
Annualized Income Generated: 28.86%
Net Profit If Called: $496.00
Percent Return If Called: 5.45%
Annualized Return If Called: 23.66%
Days to Expiration: 84 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 LM @ 91.09 -
27-Jul-07 - Initial Call Option - STO 1 Aug07 90.00 Call @ 3.49 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 90.00 Call @ 2.09 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 90.00 Call @ 0.47 -

CRI - Adjustment

The following adjustment was made today on CRI:

24-Sep-07 - Interim Trade - STO 1 Dec07 22.50 Call @ 0.69 -

Current Position Summary:

Stock Investment: $2,654.00
Income Generated: $368.00
Percent Income Generated: 13.87%
Annualized Income Generated: 27.36%
Net Profit If Called: -$36.00
Percent Return If Called: -1.36%
Annualized Return If Called: -2.68%
Days to Expiration: 185 days

Trade History:

19-Jun-07 - Initial Stock Position - BTO 100 CRI @ 26.54 -
19-Jun-07 - Initial Call Option - STO 1 Sep07 25.00 Call @ 2.99 - Expired
24-Sep-07 - Interim Trade - STO 1 Dec07 22.50 Call @ 0.69 -

Paper Trade Followup

This is a followup on the WLL paper trade comparing selling front month options and further out options. The stock closed above the strike price so this position would have been closed on Friday. Again, like the EBAY paper trade example, it's no surprise that the return from selling front month calls was better. This ends this paper trade experiment.

Here's a summary of the returns.

WLL - Paper Trade #1 (Aug)

Stock Investment: $4,164.00
Income Generated: $433.00
Net Profit: $269.00
Percent Return: 6.46%
Annualized Return: 42.11%
Days to Expiration: 56 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 WLL @ 41.64 -
27-Jul-07 - Initial Call Option - STO 1 Aug07 40.00 Call @ 2.34 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 40.00 Call @ 2.09 - Exercised
21-Sep-07 - Option Exercised - EX 1 Aug07 40.00 Call @ 40.00 -

WLL - Paper Trade #2 (Sep)

Stock Investment: $4,164.00
Income Generated: $329.00
Net Profit: $165.00
Percent Return: 3.96%
Annualized Return: 25.83%
Days to Expiration: 56 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 WLL @ 41.64 -
27-Jul-07 - Initial Call Option - STO 1 Sep07 40.00 Call @ 3.29 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 40.00 Call @ 40.00 -

WLL - My Real Position

Stock Investment: $4,102.00
Income Generated: $299.00
Net Profit: $197.00
Percent Return: 4.80%
Annualized Return: 31.30%
Duration of Trade: 56 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 WLL @ 41.02 -
27-Jul-07 - Initial Call Option - STO 1 Sep07 40.00 Call @ 2.99 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 40.00 Call @ 40.00 -

XTO - Closed

The XTO Sep07 50.00 Call was exercised on Fri 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: $5,471.00
Income Generated: $204.00
Net Profit: $273.00
Percent Return: 5.03%
Annualized Return: 57.34%
Duration of Trade: 32 days

Buy & Hold Comparison

Opening Price: $54.31
Closing Price: $62.86
P/L per Share: $8.55
Shares: 100
Dividends: $0.00
Net Profit: $855.00
Percent Return: 15.74%
Annualized Return: 179.57%
Duration of Trade: 32 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 XTO @ 54.31 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 55.00 Call @ 2.04 - Exercised
21-Sep-07 - Option Exercised - EX 1 Aug07 50.00 Call @ 55.00 -

WSM - Closed

The WSM Sep07 30.00 Call was exercised on Fri 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: $3,217.00
Income Generated: $320.00
Net Profit: $103.00
Percent Return: 3.20%
Annualized Return: 36.52%
Duration of Trade: 32 days

Buy & Hold Comparison

Opening Price: $32.17
Closing Price: $30.99
P/L per Share: -$1.18
Shares: 100
Dividends: $0.00
Net Profit: -$118.00
Percent Return: -3.67%
Annualized Return: -41.84%
Duration of Trade: 32 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 WSM @ 32.17 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 30.00 Call @ 3.20 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 30.00 Call @ 30.00 -

WLL - Closed

The WLL Sep07 40.00 Call was exercised on Fri 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: $4,102.00
Income Generated: $299.00
Net Profit: $197.00
Percent Return: 4.80%
Annualized Return: 31.30%
Duration of Trade: 56 days

Buy & Hold Comparison

Opening Price: $41.10
Closing Price: $44.48
P/L per Share: $3.38
Shares: 100
Dividends: $0.00
Net Profit: $338.00
Percent Return: 8.22%
Annualized Return: 53.60%
Duration of Trade: 56 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 WLL @ 41.02 -
27-Jul-07 - Initial Call Option - STO 1 Sep07 40.00 Call @ 2.99 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 40.00 Call @ 40.00 -

TEX - Closed

The TEX Sep07 80.00 Call was exercised on Fri 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: $8,381.00
Income Generated: $826.00
Net Profit: $445.00
Percent Return: 5.31%
Annualized Return: 34.61%
Duration of Trade: 56 days

Buy & Hold Comparison

Opening Price: $83.81
Closing Price: $83.58
P/L per Share: -$0.23
Shares: 100
Dividends: $0.00
Net Profit: -$23.00
Percent Return: -0.27%
Annualized Return: -1.79%
Duration of Trade: 56 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 TEX @ 83.81 -
27-Jul-07 - Initial Call Option - STO 1 Aug07 80.00 Call @ 5.97 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 80.00 Call @ 2.29 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 80.00 Call @ 80.00 -

STLD - Closed

The STLD Sep07 40.00 Call was exercised on Fri 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: $4,338.00
Income Generated: $626.00
Net Profit: $288.00
Percent Return: 6.64%
Annualized Return: 25.78%
Duration of Trade: 94 days

Buy & Hold Comparison

Opening Price: $43.38
Closing Price: $46.27
P/L per Share: $2.89
Shares: 100
Dividends: $0.15
Net Profit: $304.00
Percent Return: 7.01%
Annualized Return: 27.21%
Duration of Trade: 94 days

Trade History:

19-Jun-07 - Initial Stock Position - BTO 100 STLD @ 43.38 -
19-Jun-07 - Initial Call Option - STO 1 Aug07 40.00 Call @ 4.72 - Expired
13-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.05 -
13-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.10 -
20-Aug-07 - Continued Trade - STO 1 Sep07 40.00 Call @ 1.39 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 40.00 Call @ 40.00 -

NUE - Closed

The NUE Sep07 50.00 Call was exercised on Fri 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: $5,224.00
Income Generated: $608.00
Net Profit: $384.00
Percent Return: 7.35%
Annualized Return: 47.91%
Duration of Trade: 56 days

Buy & Hold Comparison

Opening Price: $52.24
Closing Price: $59.49
P/L per Share: $7.25
Shares: 100
Dividends: $0.00
Net Profit: $725.00
Percent Return: 13.88%
Annualized Return: 90.46%
Duration of Trade: 56 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 NUE @ 52.24 -
27-Jul-07 - Initial Call Option - STO 1 Aug07 50.00 Call @ 3.49 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 50.00 Call @ 2.59 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 50.00 Call @ 50.00 -

ITG - Closed

The ITG Sep07 40.00 Call was exercised on Fri 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: $4,536.00
Income Generated: $662.00
Net Profit: $126.00
Percent Return: 2.78%
Annualized Return: 4.81%
Duration of Trade: 211 days

Buy & Hold Comparison

Opening Price: $45.36
Closing Price: $40.55
P/L per Share: -$4.81
Shares: 100
Dividends: $0.00
Net Profit: -$481.00
Percent Return: -10.60%
Annualized Return: -18.34%
Duration of Trade: 211 days

Trade History:

22-Feb-07 - Initial Stock Position - BTO 100 ITG @ 45.36 -
22-Feb-07 - Initial Call Option - STO 1 Jul07 45.00 Call @ 4.79 - Expired
25-Jul-07 - Continued Trade - STO 1 Aug07 45.00 Call @ 0.39 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 40.00 Call @ 1.44 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 40.00 Call @ 40.00 -

CTSH - Closed

The CTSH Sep07 70.00 Call was exercised on Fri and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

This was the position I established mid-month after closing EBAY & RS early. The result was an extra $134 profit for the month.

Covered Call Results

Stock Investment: $7,126.00
Income Generated: $289.00
Net Profit: $163.00
Percent Return: 2.29%
Annualized Return: 59.64%
Duration of Trade: 14 days

Buy & Hold Comparison

Opening Price: $71.26
Closing Price: $75.86
P/L per Share: $4.60
Shares: 100
Dividends: $0.00
Net Profit: $460.00
Percent Return: 6.46%
Annualized Return: 168.30%
Duration of Trade: 14 days

Trade History:

07-Sep-07 - Initial Stock Position - BTO 100 CTSH @ 71.26 -
07-Sep-07 - Initial Call Option - STO 1 Sep07 70.00 Call @ 2.89 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 70.00 Call @ 70.00 -

BRCM - Closed

The BRCM Sep07 35.00 Call was exercised on Fri 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: $3,527.00
Income Generated: $552.00
Net Profit: $525.00
Percent Return: 14.89%
Annualized Return: 25.63%
Duration of Trade: 212 days

Buy & Hold Comparison

Opening Price: $35.27
Closing Price: $36.11
P/L per Share: $0.84
Shares: 100
Dividends: $0.00
Net Profit: $84.00
Percent Return: 2.38%
Annualized Return: 4.10%
Duration of Trade: 212 days

Trade History:

21-Feb-07 - Initial Stock Position - BTO 100 BRCM @ 35.27 -
21-Feb-07 - Initial Call Option - STO 1 Aug07 35.00 Call @ 4.33 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 35.00 Call @ 1.19 - Exercised
21-Sep-07 - Option Exercised - EX 1 Sep07 35.00 Call @ 35.00 -

New Options Pricing

I just receiving the following information from Interactive Brokers.

On September 28, the number of US option classes trading in pennies will expand such that 35% of all US options volumes will be tradable in penny increments. An additional indicator of the rapidly changing structure of the US options market is that several option exchanges will be adopting the "make or take" model for exchange fees. In this model, non-marketable limit orders (makers) receive liquidity-adding credits from the exchange, while marketable orders (takers) are charged a transaction fee. The liquidity adding/liquidity removing market structure will be familiar to traders acting in US stocks since nearly all ECNs are organized this way.

In anticipation of the benefit and impact these changes will have on traders, IB will enhance its commission model to provide a fully transparent unbundled pricing structure. Unbundled pricing will allow traders to employ quoting strategies where they can actually receive a rebate from the exchange for improving liquidity.

Effective October 1, 2007, all US option commissions will include external exchange fees if any. IB will reduce its first tier commission from $0.75 to $0.70, while the top tier will remain $0.15 at the highest volumes and we will pass on rebates, as well as costs, where they exist, to our customers. It should be noted that for the majority of US exchanges there is no cost for stock options execution. For a complete listing of US option commissions and exchange fees, click here.

MDT - Adjustment

The following adjustment was made today on MDT:

21-Sep-07 - Buy Back & Roll Out/Up - BTC 1 Sep07 55.00 Call @ -1.46 - Closed
21-Sep-07 - Continued Trade - STO 1 Nov07 57.50 Call @ 1.39 -

Current Position Summary:

Stock Investment: $5,272.00
Income Generated: $189.50
Percent Income Generated: 3.59%
Annualized Income Generated: 6.34%
Net Profit If Called: $667.50
Percent Return If Called: 12.66%
Annualized Return If Called: 22.33%
Days to Expiration: 207 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 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 52.50 Call @ -0.06
15-Jun-07 - Initial Call Option - STO 1 Jul07 55.00 Call @ 0.49 - Expired
25-Jul-07 - Continued Trade - STO 1 Sep07 55.00 Call @ 0.63 - Closed
27-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.13
21-Sep-07 - Buy Back & Roll Out/Up - BTC 1 Sep07 55.00 Call @ -1.46
21-Sep-07 - Continued Trade - STO 1 Nov07 57.50 Call @ 1.39

Note that as a Value Investing Covered Call (VICC) position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate.

Investment Seminars

Beware of investment seminars. They tell you that over a 2-3 day
period they can teach you to become a successful investor. Then they
try to sell you more expensive education or services. If these people
had really successful trading systems, why would they need to sell
the information when they should be able to make more than enough
money trading their own system?

Investing is a skill that takes a lot of time and practice, like
playing the piano. Would you expect to learn how to play the piano
like a concert pianist in just 2-3 days? I don't think so. So how
could you expect to learn how to be a successful investor in 2-3 days?

I never attended any investments seminars, but instead read many
books, costing a lot less than the average price of a seminar. It
took years of study and practice to get where I am today. It would
have taken about the same amount of time had I attended a seminar,
although it may have saved a little time in the beginning. But this
is not a race. The pursuit of knowledge, including investment
knowledge, is a lifelong process.

Another thing about these seminars is that they typically teach a
specific method of investing. What they don't tell you is that their
method might not work for everyone. There's not a single method in
the world that works for everyone. We are all different. What works
for some people just doesn't work for others.

Take my method for example. It works great for me. I could probably
market it and hold seminars for $4000 too. But I don't, because I
know that my method might not work for everyone and I just wouldn't
feel right taking other peoples money for something that doesn't work
for them. So, I give it away for free and get more satisfaction from
helping others who find it beneficial. I make all my money trading my
method, not selling it.

Now, that's not to say that all investment seminars are bad and that
these companies are dishonest. We live in a capitalistic society and
they have the right to market their methods. Some people are helped
by these seminars, but others are hurt by them because they go in
with the wrong expectations. Then when things don't turn out like the
ads stated, they give up and try another seminar. In the end, they've
spent thousands of dollars and have nothing to show for it. I know
people who have done this, and it's sad. They're always looking for
the "Holy Grail", which just doesn't exist.

I believe there are no shortcuts to learning how to be a successful
investor. It takes lots of time, study and practice, and is hard
work, but the benefits are worth it.

The Best Advice of All Time

The Sep 2007 issue of Money magazine has an interesting article titled "The Best Advice of All Time" consisting of 20 rules for success from some of the smartest investors (and other people) who have ever lived. I won't reproduce the entire article here but will list the quotes for you to ponder.

1. When you do not know a thing, to allow that you do not know it, this is knowledge. -Confucious

2. He that is overcautious will accomplish little. -Friedrich von Schiller

3. For age and want, save while you may; no morning sun lasts a whole day. -Benjamin Franklin

4. It is the part of a wise man to keep himself today for tomorrow and not to venture all eggs in one basket. -Miguel de Cervantes

5. Asset allocation is the overwhelmingly dominant contributor to total return. -Gary Brinston, Brian Singer, and Gilbert Beebower

6. The best way to own common stocks is through an index fund. -Warren Buffett

7. It never was my thinking that made the big money. It was always my sitting. Got that? My sitting tight! -Edwin Lefevre

8. The real key to making money in stocks is not to get scared out of them. -Peter Lynch

9. Performance comes and goes, but costs roll on forever. -Jack Bogle

10. Fashion is made to become unfashionable. -Cocos Chanel

11. If a business is worth a dollar and I can buy it for 40 cents, something good may happen to me. -Warren Buffett

12. The world is a book, and those who do not travel read only a page. -St. Augustine

13. There is nothing new in the world except the history you do not know. -Harry Truman

14. It takes as much energy to wish as it does to plan. -Eleanor Roosevelt

15. As life closes in on someone who has borrowed far too much on the strength of far too little income, there are no fire escapes. -John Kenneth Galbraith

16. In every house of marriage there's room for an interpreter. -Stanley Kunitz

17. Only put off until tomorrow what you are willing to die having left undone. -Pablo Picasso

18. The avoidance of taxes is the only intellectual pursuit that carries any reward. -John Maynard Keynes

19. The time is always right to do the right thing. -Martin Luther King Jr.

20. A wise man should have money in his head, but not in his heart. -Jonathan Swift

Announcing a New Covered Call Blog

Jeff, a subscriber to this blog, and a member of, and regular contributor to our JustCoveredCalls Yahoo Group, has recently announced his new covered call blog, Covered Calls Advisor. His approach to covered calls is slightly different than mine, although there are many similarities. It will provide readers of this blog with a different perspective and method for trading covered calls.

Congratulations on your new blog, Jeff! I'm sure you'll find it a rewarding experience. I'm looking forward to reading it and highly recommend that my readers check it out too.

When to Close a Covered Call Position Early

Occasionally, it's advantageous to close an in-the-money (ITM) covered call (CC) position early and establish a new position. This week I closed two positions early, EBAY and RS. Then I used the proceeds to establish a new position, CTSH, in the same option expiration month. The net effect will be an increase in the original profit of $134, if CTSH is called away on 9/21.

Here are the guidelines that I used for making this decision.

1. The actual profit if closed early should be at least 80% of the original profit potential If Called at expiration.

2. The annualized return if closed early should be greater than the annualized return If Called at expiration, preferably by 5% or more.

3. The amount of profit given back should be less than or equal to $50, the lower the better.

For example, EBAY's original profit potential was:

Net Profit If Called: $139.50
Percent Return If Called: 4.23%
Annualized Return If Called: 27.60%
Days to Expiration: 56 days

The actual profit from closing early was:

Net Profit: $129.50
Percent Return: 3.93%
Annualized Return: 34.99%
Duration of Trade: 41 days

The percent of original return was about 93% (129.50/130.50), the annualized return was increased by 7.39% (34.99-27.60), and the amount given back was $10 (139.50-129.50). So, this met all three criteria for closing early.

For example, RS's original profit potential was:

Net Profit If Called: $198.00
Percent Return If Called: 4.28%
Annualized Return If Called: 48.85%
Days to Expiration: 32 days

The actual profit from closing early was:

Net Profit: $179.00
Percent Return: 3.87%
Annualized Return: 83.13%
Duration of Trade: 17 days

The percent of original return was about 90% (179.00/198.00), the annualized return was increased by 34.28% (83.13-48.85), and the amount given back was $19 (198.00-179.00). So, this met all three criteria for closing early.

Ideally, there should be sufficient time (e.g. a week or more) left in the current expiration month to establish a new position in the same month. However, sometimes you have to go out an additional month for the new position.

The closer we get to options expiration the harder it is to find positions that provide enough return. What's enough return? For me, it's 24% annualized if called or if not called. Also, the amount of return, on the new position, has to be greater than the amount given back to close the previous position(s) to make it worthwhile. Otherwise, you could just let the previous position(s) run until options expiration and get called away, assuming it's/they're still ITM at expiration.

CTSH was an ideal position.

Net Profit If Called: $163.00
Percent Return If Called: 2.29%
Annualized Return If Called: 59.64%
Days to Expiration: 14 days

It had the same expiration month, provided more than 24% annualized return If Called, and the profit was greater than the amount given back on EBAY & RS, providing an extra $134 (163.00-29.00) in profit within the same time frame.

These opportunities don't always present themselves, but when they do you should take advantage of them. This requires monitoring your positions daily. I use a spreadsheet which automatically calculates the return if closed and compares it to the original return. That way I can see at a glance which positions are eligible for an early close. When I find one, I immediately start looking for a new position to establish in the same or the following expiration month. This is one way to increase your profits by taking advantage of what the market gives you.

CTSH - New Position

A new position was established today on CTSH. The following is the trade information, including IB commissions:

07-Sep-07 - Initial Stock Position - BTO 100 CTSH @ 71.26
07-Sep-07 - Initial Call Option - STO 1 Sep07 70.00 Call @ 2.89

Stock Investment: $7,126.00
Income Generated: $289.00
Percent Income Generated: 4.06%
Annualized Income Generated: 105.73%
Net Profit If Called: $163.00
Percent Return If Called: 2.29%
Annualized Return If Called: 59.64%
Days to Expiration: 14 days

Company Fundamentals - Multi-Year Median Performance

Shareholder Equity: 57.08%
Free Cash Flow: 39.05%
Return on Assets: 19.38%
Return on Equity: 26.88%
Cash Return on Invested Capital: 17.20%

This is an example of using the proceeds from the positions that were closed early, in this case EBAY & RS, to establish a new position in the same expiration month. The combined investment for EBAY & RS was $7,917.50 and the original combined profit was $337.50. By closing those positions early, once they reached over 90% of their potential profit, the profit was reduced by $29 (337.50-308.50). However, by re-investing $7,126.00 into CTSH I now have the opportunity to increase the original profit by $134 (308.50+163.00-337.50) within the same time frame.

RS - Closed

The RS position was closed today for a profit since it already produced about 90% of the expected return. By closing early I gave back $19 in profit but increased the annualized return. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $4,623.00
Income Generated: -$602.00
Net Profit: $179.00
Percent Return: 3.87%
Annualized Return: 83.13%
Duration of Trade: 17 days

Buy & Hold Comparison

Opening Price: $46.23
Closing Price: $54.04
P/L per Share: $7.81
Shares: 100
Dividends: $0.00
Net Profit: $781.00
Percent Return: 16.89%
Annualized Return: 362.72%
Duration of Trade: 17 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 RS @ 46.23 - Closed
20-Aug-07 - Initial Call Option - STO 1 Sep07 45.00 Call @ 3.21 - Closed
06-Sep-07 - Position Closed - BTC 1 Sep07 45.00 Call @ -9.23 -
06-Sep-07 - Position Closed - STC 1 Closed @ 54.04 -

EBAY - Closed

The EBAY position was closed today for a profit since it already produced about 93% of the expected return. By closing early I gave back $10 in profit but increased the annualized return. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $3,294.50
Income Generated: -$147.00
Net Profit: $129.50
Percent Return: 3.93%
Annualized Return: 34.99%
Duration of Trade: 41 days

Buy & Hold Comparison

Opening Price: $32.95
Closing Price: $35.71
P/L per Share: $2.76
Shares: 100
Dividends: $0.00
Net Profit: $276.00
Percent Return: 8.38%
Annualized Return: 74.57%
Duration of Trade: 41 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 EBAY @ 32.95 - Closed
27-Jul-07 - Initial Call Option - STO 1 Sep07 32.50 Call @ 1.84 - Closed
06-Sep-07 - Position Closed - BTC 1 Sep07 32.50 Call @ -3.31 -
06-Sep-07 - Position Closed - STC 1 Closed @ 35.71 -

Paper Trade Followup

This is a followup on the paper trade experiment started last month. There were two paper trades for EBAY & WLL, one a front month (Aug) covered call (CC) and one a second month (Sep) CC. Here are the results for the Aug positions.

EBAY - Paper Trade #1 (Aug)

The Aug 32.50 Call was in-the-money (ITM) on Friday so this position would have been called away for a profit. This ends this paper trade.

Stock Investment: $3,258.00
Income Generated: $94.00
Net Profit If Called: $86.00
Percent Return: 2.64%
Annualized Return: 45.88%
Duration of Trade: 21 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 EBAY @ 32.58
27-Jul-07 - Initial Call Option - STO 1 Aug07 32.50 Call @ 0.94

EBAY - Paper Trade #2 (Sep)

27-Jul-07 - Initial Stock Position - BTO 100 EBAY @ 32.58
27-Jul-07 - Initial Call Option - STO 1 Sep07 32.50 Call @ 1.64

Stock Investment: $3,258.00
Income Generated: $164.00
Percent Income Generated: 5.03%
Annualized Income Generated: 32.81%
Net Profit If Called: $156.00
Percent Return If Called: 4.79%
Annualized Return If Called: 31.21%
Days to Expiration: 56 days

EBAY - My Real Position

27-Jul-07 - Initial Stock Position - BTO 100 EBAY @ 32.95
27-Jul-07 - Initial Call Option - STO 1 Sep07 32.50 Call @ 1.84

Stock Investment: $3,294.50
Income Generated: $184.00
Percent Income Generated: 5.59%
Annualized Income Generated: 36.40%
Net Profit If Called: $139.50
Percent Return If Called: 4.23%
Annualized Return If Called: 27.60%
Days to Expiration: 56 days

WLL - Paper Trade #1 (Aug)

The Aug 70 Call was out-of-the-money (OTM) in Friday so it would have expired worthless. A new Sep 70 Call was sold using the open price on Monday.

20-Aug-07 - Continued Trade - STO 1 Sep07 40.00 Call @ 1.99 -

Stock Investment: $4,164.00
Income Generated: $433.00
Percent Income Generated: 10.40%
Annualized Income Generated: 67.78%
Net Profit If Called: $269.00
Percent Return If Called: 6.46%
Annualized Return If Called: 42.11%
Days to Expiration: 56 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 WLL @ 41.64 -
27-Jul-07 - Initial Call Option - STO 1 Aug07 40.00 Call @ 2.34 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 40.00 Call @ 1.99 -

WLL - Paper Trade #2 (Sep)

27-Jul-07 - Initial Stock Position - BTO 100 WLL @ 41.64
27-Jul-07 - Initial Call Option - STO 1 Sep07 40.00 Call @ 2.99

Stock Investment: $4,164.00
Income Generated: $329.00
Percent Income Generated: 7.90%
Annualized Income Generated: 51.50%
Net Profit If Called: $165.00
Percent Return If Called: 3.96%
Annualized Return If Called: 25.83%
Days to Expiration: 56 days

WLL - My Real Position

27-Jul-07 - Initial Stock Position - BTO 100 WLL @ 41.02
27-Jul-07 - Initial Call Option - STO 1 Sep07 40.00 Call @ 2.99

Stock Investment: $4,102.00
Income Generated: $299.00
Percent Income Generated: 7.29%
Annualized Income Generated: 47.51%
Net Profit If Called: $197.00
Percent Return If Called: 4.80%
Annualized Return If Called: 31.30%
Days to Expiration: 56 days

For EBAY, the Aug CC produced a better annualized return, but lower dollar profit then the potential for the Sep CC. One criteria that I use is the amount of profit in dollars. I prefer to make at least $100 profit per position. Since the Aug CC offered less than $100 profit, I chose the Sep CC for my "real" position.

For WLL, because the Aug call expired and a new Sep call was sold, the potential annualized return and dollar profit is greater than the original Sep paper trade. So, in this case the Aug CC would have been the better choice, in hindsight. However, the original dollar profit was also below my $100 limit, so again I chose the Sep CC for my "real" position.

This proves that front month calls usually offer a better annualized return, but I already knew that. However, the further out calls offered more initial downside protection when measured in dollars (i.e. a lower cost basis). Either choice provides good returns so it comes down to how much downside protection you feel more comfortable with. There's no right or wrong here. You should do what you're most comfortable with. Don't get greedy and just look at the potential returns, think about risk also, and decide which is better for YOU!

Taking a Loss

Well, it finally happened. I sold two positions at a loss today, since the company fundamentals no longer met my criteria. These are the first losing positions I've had in over two years of covered call trading, but it was the right thing to do according to my trading plan.

As my knowledge of value investing and how to analyze a company improves, my criteria for "What to Buy" has evolved, thanks in part to F Wall Street. After reading their analysis of Johnson & Johnson, and the accompanying spreadsheet, I began to look more closely at the company balance sheet, cash flow sheet, and key ratios.

I've also thought more about "When to Sell". As stated in my previous article on the subject, I'll only sell a losing position if/when the company fundamentals no longer meet my criteria. That's what happened to the two positions I sold for a loss today. After writing that article, I went back to re-analyze all of my current positions using my new spreadsheet, which is modeled after the one from F Wall Street.

The following explains why I sold each of these positions.

AMD

I established this position in Jan07 since it met my criteria at that time. When I looked at AMD now, using my new fundamental analysis spreadsheet, I was surprised to see that it didn't meet any of my fundamental criteria. So, obviously either my previous criteria wasn't robust enough or I was asleep at the wheel when I established this position.

If you look at the spreadsheet for AMD, you'll see that the company has negative free cash flow, and negative returns. Now, compare that with the spreadsheet for INTC, which is their major competitor. It's like night and day. Clearly, INTC has a competitive advantage over AMD and is much more profitable, generating a lot of free cash flow and double digit returns. It's pretty much a no-brainer when you compare these spreadsheets.

So, obviously I made a mistake in establishing this position, therefore the decision to sell, even at a loss, is the right thing to do.

PALM

I established this position Apr06, again because it met my criteria at that time. The fundamentals aren't as bad as AMD, however, they aren't that good either. But the main reason for selling this position is that PALM is losing it's competitive advantage to its competitors, like MOT.

Again, comparing the spreadsheets on PALM and MOT you can see that PALM is not doing as well as MOT. They've lost market share, which is affecting their profitability and the prospects going forward don't look too good.

So again, the decision to sell, even at a loss, is the right thing to do.

Conclusion

Now, I could have held these positions, and eventually exited at a profit, for the sake of keeping my winning streak intact, but that would have been an emotional response. But this is not about emotions or my ego, it's about making the right decision according to my trading plan. No emotion, no regret, just follow the plan.

You can be sure that going forward I'll be more careful in my analysis of company fundamentals, so, hopefully, mistakes like this should be rare. Everyone makes mistakes, but it's how you deal with them that matters. It's better to admit a mistake and learn from it then to bury your head in the sand and deny it. The most important thing to remember is to make sure you gain from the experience. No one wants to learn the hard way, but you learn more from your mistakes than from watching or reading about others. Mistakes are an inevitable part of life, so you better learn the right way to deal with them. This will not only make you a better person, it will also make you a better investor.

XTO - New Position

A new position was established today on XTO. The following is the trade information, including IB commissions:

20-Aug-07 - Initial Stock Position - BTO 100 XTO @ 54.31
20-Aug-07 - Initial Call Option - STO 1 Sep07 55.00 Call @ 2.04

Stock Investment: $5,431.00
Income Generated: $204.00
Percent Income Generated: 3.76%
Annualized Income Generated: 42.84%
Net Profit If Called: $273.00
Percent Return If Called: 5.03%
Annualized Return If Called: 57.34%
Days to Expiration: 32 days

WSM - New Position

A new position was established today on WSM. The following is the trade information, including IB commissions:

20-Aug-07 - Initial Stock Position - BTO 100 WSM @ 32.17
20-Aug-07 - Initial Call Option - STO 1 Sep07 30.00 Call @ 3.20

Stock Investment: $3,217.00
Income Generated: $320.00
Percent Income Generated: 9.95%
Annualized Income Generated: 113.46%
Net Profit If Called: $103.00
Percent Return If Called: 3.20%
Annualized Return If Called: 36.52%
Days to Expiration: 32 days

RS - New Position

A new position was established today on RS. The following is the trade information, including IB commissions:

20-Aug-07 - Initial Stock Position - BTO 100 RS @ 46.23
20-Aug-07 - Initial Call Option - STO 1 Sep07 45.00 Call @ 3.21

Stock Investment: $4,623.00
Income Generated: $321.00
Percent Income Generated: 6.94%
Annualized Income Generated: 79.20%
Net Profit If Called: $198.00
Percent Return If Called: 4.28%
Annualized Return If Called: 48.85%
Days to Expiration: 32 days

PLCM - New Position

A new position was established today on PLCM. The following is the trade information, including IB commissions:

20-Aug-07 - Initial Stock Position - BTO 100 PLCM @ 31.64
20-Aug-07 - Initial Call Option - STO 1 Sep07 30.00 Call @ 2.55

Stock Investment: $3,164.00
Income Generated: $255.00
Percent Income Generated: 8.06%
Annualized Income Generated: 91.93%
Net Profit If Called: $91.00
Percent Return If Called: 2.88%
Annualized Return If Called: 32.81%
Days to Expiration: 32 days

PFCB - New Position

A new position was established today on PFCB. The following is the trade information, including IB commissions:

20-Aug-07 - Initial Stock Position - BTO 100 PFCB @ 35.78
20-Aug-07 - Initial Call Option - STO 1 Sep07 35.00 Call @ 2.30

Stock Investment: $3,578.00
Income Generated: $230.00
Percent Income Generated: 6.43%
Annualized Income Generated: 73.32%
Net Profit If Called: $152.00
Percent Return If Called: 4.25%
Annualized Return If Called: 48.46%
Days to Expiration: 32 days

WFMI - Adjustment

The following adjustment was made today on WFMI:

20-Aug-07 - Continued Trade - STO 2 Sep07 50.00 Call @ 0.20 -

Current Position Summary:

Stock Investment: $8,563.00
Income Generated: $239.00
Percent Income Generated: 2.79%
Annualized Income Generated: 6.75%
Net Profit If Called: $1,676.00
Percent Return If Called: 19.57%
Annualized Return If Called: 47.31%
Days to Expiration: 151 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 - Closed
21-Jun-07 - Buy Back and Roll Out - BTC 1 Jul07 45.00 Call @ -0.03 -
21-Jun-07 - Dollar Cost Averaging - BTO 100 WFMI @ 38.44 -
21-Jun-07 - Combined Cost Basis - $8,563.00 200 @ 42.82 -
21-Jun-07 - Continued Trade - STO 2 Aug07 45.00 Call @ 0.29 - Expired
24-Jul-07 - Dividend Received - DIV 200 Dividend @ 0.18 -
20-Aug-07 - Continued Trade - STO 2 Sep07 50.00 Call @ 0.20 -

Note that as a Value Investing Covered Call (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.