An Interview with Mohnish Pabrai

Morningstar Stock Analyst, Justin Fuller, who manages The Ultimate Stock-Picker's Portfolio, interviewed Mohnish Pabrai, manager of the Pabrai Funds and a true Buffett devotee. Mohnish recently wrote a book titled "The Dhandho Investor", which I highly recommend, where he shares some of his investing insights.

In this interview they talk about Berkshire, American Express, the Kelly Formula, and other insights from Mohnish's investment philosophy.

Click here to view the complete interview.

A Paper Trade Experiment

One of my readers posted the following comment:

"Let's do an experiment--Let's compare your actual results on these 2 transactions with what your results would have been if you sold the August calls first and then at Aug expiration date sold the Sep."

I thought this would be an interesting experiment, even though I'm pretty sure that the front month calls will provide a much better return, in most cases. However, returns are just part of the picture. The other is risk (i.e. downside protection). I evaluate both sides and don't base my decisions strictly on returns or on risk. It's a balancing act between risk/reward and everyone will have a different tipping point. So, although some will prefer to maximize returns, others prefer to minimize risk, and still others prefer something in the middle.

I posted my original positions below, along with 2 paper trades for each stock. Since the prices have moved since I established my positions I thought it would be best to show 2 new positions for Aug & Sep at current prices as of Friday's close. These will be slightly different from my original positions but will give you a better reference point.

EBAY - Original 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

EBAY - Paper Trades

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

Stock Investment: $3,258.00
Income Generated: $94.00
Percent Income Generated: 2.89%
Annualized Income Generated: 50.15%
Net Profit If Called: $86.00
Percent Return If Called: 2.64%
Annualized Return If Called: 45.88%
Days to Expiration: 21 days

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

WLL - Original 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

WLL - Paper Trades

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

Stock Investment: $4,164.00
Income Generated: $234.00
Percent Income Generated: 5.62%
Annualized Income Generated: 97.67%
Net Profit If Called: $70.00
Percent Return If Called: 1.68%
Annualized Return If Called: 29.22%
Days to Expiration: 21 days

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

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

So, as you can see the Aug CC's provide higher annualized returns and the Sep CC's provide more downside protection (Percent Income Generated). Either choice provides good returns so it comes down to how much downside protection you feel more comfortable with.

I'll monitor these paper trades and post any adjustments if the Aug calls expire. If they get called away then I'll continue to post updates on my "real" positions and provide a comparison when they eventually get called away.

Today's New Positions

The new positions established today are using my new criteria of 24% annualized return if called or if not called. Of the 6 new positions, 4 of them were front month calls and 2 were second month calls. I know one reader who will be very pleased with this ;-).

The market sell off this week provided some nice opportunities to buy these stocks below their fair value, as determined by Morningstar. All of these positions were sold ITM, so they could fall a bit more and still get called away at expiration. Even if the market continues to decline and these positions end up OTM, the premiums received will provide a nice return.

I have no idea what the market will do but I don't really care. These are all solid companies purchased at a good price. Although they are short-term positions, I'd be willing to hold them for 2-3 years.

WLL - New Position

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

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

TEX - New Position

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

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

Stock Investment: $8,381.00
Income Generated: $597.00
Percent Income Generated: 7.12%
Annualized Income Generated: 123.81%
Net Profit If Called: $216.00
Percent Return If Called: 2.58%
Annualized Return If Called: 44.80%
Days to Expiration: 21 days

NUE - New Position

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

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

Stock Investment: $5,224.00
Income Generated: $349.00
Percent Income Generated: 6.68%
Annualized Income Generated: 116.12%
Net Profit If Called: $125.00
Percent Return If Called: 2.39%
Annualized Return If Called: 41.59%
Days to Expiration: 21 days

LM - New Position

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

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

Stock Investment: $9,109.00
Income Generated: $349.00
Percent Income Generated: 3.83%
Annualized Income Generated: 66.59%
Net Profit If Called: $240.00
Percent Return If Called: 2.63%
Annualized Return If Called: 45.79%
Days to Expiration: 21 days

EXBD - New Position

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

27-Jul-07 - Initial Stock Position - BTO 100 EXBD @ 67.45
27-Jul-07 - Initial Call Option - STO 1 Aug07 65.00 Call @ 3.49

Stock Investment: $6,745.00
Income Generated: $349.00
Percent Income Generated: 5.17%
Annualized Income Generated: 89.93%
Net Profit If Called: $104.00
Percent Return If Called: 1.54%
Annualized Return If Called: 26.80%
Days to Expiration: 21 days

EBAY - New Position

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

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

MDT - Adjustment

The following adjustment was made today on MDT:

25-Jul-07 - Continued Trade - STO 1 Sep07 55.00 Call @ 0.63 -

Current Position Summary:

Stock Investment: $5,272.00
Income Generated: $184.00
Percent Income Generated: 3.49%
Annualized Income Generated: 8.44%
Net Profit If Called: $412.00
Percent Return If Called: 7.81%
Annualized Return If Called: 18.89%
Days to Expiration: 151 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 -

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.

MCO - Adjustment

The following adjustment was made today on MCO:

25-Jul-07 - Continued Trade - STO 1 Aug07 60.00 Call @ 1.54 -

Current Position Summary:

Stock Investment: $6,241.00
Income Generated: $503.00
Percent Income Generated: 8.06%
Annualized Income Generated: 58.84%
Net Profit If Called: $262.00
Percent Return If Called: 4.20%
Annualized Return If Called: 30.65%
Days to Expiration: 50 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 -

ITG - Adjustment

The following adjustment was made today on ITG:

25-Jul-07 - Continued Trade - STO 1 Aug07 45.00 Call @ 0.39 -

Current Position Summary:

Stock Investment: $4,536.00
Income Generated: $518.00
Percent Income Generated: 11.42%
Annualized Income Generated: 23.68%
Net Profit If Called: $482.00
Percent Return If Called: 10.63%
Annualized Return If Called: 22.04%
Days to Expiration: 176 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 -

AMD - Adjustment

The following adjustment was made today on AMD:

25-Jul-07 - Continued Trade - STO 1 Aug07 16.00 Call @ 0.43 -

Current Position Summary:

Stock Investment: $1,624.00
Income Generated: $257.00
Percent Income Generated: 15.83%
Annualized Income Generated: 28.31%
Net Profit If Called: $233.00
Percent Return If Called: 14.35%
Annualized Return If Called: 25.67%
Days to Expiration: 204 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 AMD @ 16.24 -
25-Jan-07 - Initial Call Option - STO 1 Jul07 16.00 Call @ 2.14 - Expired
25-Jul-07 - Continued Trade - STO 1 Aug07 16.00 Call @ 0.43 -

OSUR - Closed

The OSUR position was closed today in order to reallocate the cash. This was an old position that no longer meets my criteria. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $1,042.00
Income Generated: $276.00
Net Profit: $64.00
Percent Return: 6.14%
Annualized Return: 4.56%
Duration of Trade: 492 days

Buy & Hold Comparison

Opening Price: $10.42
Closing Price: $8.30
P/L per Share: -$2.12
Shares: 100
Dividends: $0.00
Net Profit: -$212.00
Percent Return: -20.35%
Annualized Return: -15.09%
Duration of Trade: 492 days

Trade History:

20-Mar-06 - Initial Stock Position - BTO 100 OSUR @ 10.42 - Closed
20-Mar-06 - Initial Call Option - STO 1 Jul06 10.00 Call @ 1.49 - Expired
24-Jul-06 - Continued Trade - STO 1 Jan07 10.00 Call @ 0.89 - Closed
19-Dec-06 - Buy Back & Roll Out - BTC 1 Jan07 10.00 Call @ -0.11 -
19-Dec-06 - Continued Trade - STO 1 Jul07 10.00 Call @ 0.49 - Expired
25-Jul-07 - Position Closed - STC 1 Closed @ 8.30 -

ZEUS - Closed

The ZEUS Jul07 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: $2,515.00
Income Generated: $295.00
Net Profit: $280.00
Percent Return: 11.13%
Annualized Return: 23.22%
Duration of Trade: 175 days

Buy & Hold Comparison

Opening Price: $25.15
Closing Price: $30.31
P/L per Share: $5.06
Shares: 100
Dividends: $0.06
Net Profit: $522.00
Percent Return: 20.76%
Annualized Return: 43.29%
Duration of Trade: 175 days

Trade History:

26-Jan-07 - Initial Stock Position - BTO 100 ZEUS @ 25.15 -
26-Jan-07 - Initial Call Option - STO 1 Jul07 25.00 Call @ 2.89 - Exercised
15-Mar-07 - Dividend Received - DIV 100 Dividend @ 0.03 -
15-Jun-07 - Dividend Received - DIV 100 Dividend @ 0.03 -
20-Jul-07 - Option Exercised - EX 1 Jul07 25.00 Call @ 25.00 -

NVT - Closed

The NVT Jul07 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: $3,431.00
Income Generated: $313.00
Net Profit: $382.00
Percent Return: 11.13%
Annualized Return: 27.27%
Duration of Trade: 149 days

Buy & Hold Comparison

Opening Price: $34.31
Closing Price: $48.37
P/L per Share: $14.06
Shares: 100
Dividends: $0.00
Net Profit: $1,406.00
Percent Return: 40.98%
Annualized Return: 100.39%
Duration of Trade: 149 days

Trade History:

21-Feb-07 - Initial Stock Position - BTO 100 NVT @ 34.31 -
21-Feb-07 - Initial Call Option - STO 1 Jul07 35.00 Call @ 3.13 - Exercised
20-Jul-07 - Option Exercised - EX 1 Jul07 35.00 Call @ 35.00 -

NITE - Closed

The NITE Jul07 15.00 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: $1,565.00
Income Generated: $194.00
Net Profit: $129.00
Percent Return: 8.24%
Annualized Return: 24.46%
Duration of Trade: 123 days

Buy & Hold Comparison

Opening Price: $15.65
Closing Price: $15.65
P/L per Share: $0.00
Shares: 100
Dividends: $0.00
Net Profit: $0.00
Percent Return: 0.00%
Annualized Return: 0.00%
Duration of Trade: 123 days

Trade History:

19-Mar-07 - Initial Stock Position - BTO 100 NITE @ 15.65 -
19-Mar-07 - Initial Call Option - STO 1 Jul07 15.00 Call @ 1.94 - Exercised
20-Jul-07 - Option Exercised - EX 1 Jul07 15.00 Call @ 15.00 -

NDAQ - Closed

The NDAQ Jul07 32.50 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: $3,410.00
Income Generated: $498.00
Net Profit: $338.00
Percent Return: 9.91%
Annualized Return: 20.56%
Duration of Trade: 176 days

Buy & Hold Comparison

Opening Price: $34.10
Closing Price: $33.79
P/L per Share: -$0.31
Shares: 100
Dividends: $0.00
Net Profit: -$31.00
Percent Return: -0.91%
Annualized Return: -1.89%
Duration of Trade: 176 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 NDAQ @ 34.10 -
25-Jan-07 - Initial Call Option - STO 1 Jun07 32.50 Call @ 4.39 - Expired
19-Jun-07 - Continued Trade - STO 1 Jul07 32.50 Call @ 0.59 - Exercised
20-Jul-07 - Option Exercised - EX 1 Jul07 32.50 Call @ 32.50 -

EXP - Closed

The EXP Jul07 45.00 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: $4,841.00
Income Generated: $699.75
Net Profit: $358.75
Percent Return: 7.41%
Annualized Return: 6.38%
Duration of Trade: 424 days

Buy & Hold Comparison

Opening Price: $48.41
Closing Price: $46.87
P/L per Share: -$1.54
Shares: 100
Dividends: $0.56
Net Profit: -$98.00
Percent Return: -2.02%
Annualized Return: -1.74%
Duration of Trade: 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 - Exercised
20-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.20 -
20-Jul-07 - Option Exercised - EX 1 Jul07 45.00 Call @ 45.00 -

EBAY - Closed

The EBAY Jul07 32.50 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: $3,325.00
Income Generated: $379.00
Net Profit: $304.00
Percent Return: 9.14%
Annualized Return: 18.96%
Duration of Trade: 176 days

Buy & Hold Comparison

Opening Price: $33.25
Closing Price: $33.53
P/L per Share: $0.27
Shares: 100
Dividends: $0.00
Net Profit: $27.00
Percent Return: 0.81%
Annualized Return: 1.68%
Duration of Trade: 176 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 EBAY @ 33.25 -
25-Jan-07 - Initial Call Option - STO 1 Jul07 32.50 Call @ 3.79 - Exercised
20-Jul-07 - Option Exercised - EX 1 Jul07 32.50 Call @ 32.50 -

CECO - Closed

The CECO Jul07 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: $8,924.01
Income Generated: $1,075.25
Net Profit: $1,151.24
Percent Return: 12.90%
Annualized Return: 7.04%
Duration of Trade: 669 days

Buy & Hold Comparison

Opening Price: $34.24
Closing Price: $32.48
P/L per Share: -$1.76
Shares: 300
Dividends: $0.00
Net Profit: -$528.00
Percent Return: -5.14%
Annualized Return: -2.80%
Duration of Trade: 669 days

Trade History:

19-Sep-05 - Initial Stock Position - BTO 100 CECO @ 38.64 -
19-Sep-05 - Initial Call Option - STO 1 Oct05 40.00 Call @ 1.04 - Closed
05-Oct-05 - Continued Trade - BTC 1 Oct05 40.00 Call @ -0.11 -
08-Nov-05 - Continued Trade - STO 1 Dec05 40.00 Call @ 0.29 - Expired
23-Jan-06 - Interim Trade - STO 1 Feb06 35.00 Call @ 0.30 - Expired
21-Feb-06 - Continued Trade - STO 1 Apr06 40.00 Call @ 0.19 - Expired
24-Apr-06 - Continued Trade - STO 1 Jul06 40.00 Call @ 1.91 - Closed
30-Jun-06 - Buy Back - BTC 1 Jul06 40.00 Call @ -0.06 -
30-Jun-06 - Dollar Cost Averaging - BTO 100 CECO @ 29.82 -
30-Jun-06 - Combined Cost Basis - $6,846.01 200 @ 34.23 -
30-Jun-06 - Continued Trade - STO 2 Jan07 35.00 Call @ 1.71 - Closed
18-Sep-06 - Buy Back - BTC 2 Jan07 35.00 Call @ -0.11 -
18-Sep-06 - Dollar Cost Averaging - BTO 100 CECO @ 20.78 -
18-Sep-06 - Combined Cost Basis - $8,924.01 300 @ 29.75 -
18-Sep-06 - Interim Trade - STO 3 Jan07 25.00 Call @ 0.92 - Closed
22-Dec-06 - Buy Back & Roll Out/Up - BTC 3 Jan07 25.00 Call @ -1.09 -
22-Dec-06 - Continued Trade - STO 3 Jul07 30.00 Call @ 1.49 - Exercised
20-Jul-07 - Option Exercised - EX 3 Jul07 30.00 Call @ 30.00 -

ASF - Closed

The ASF Jul07 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: $3,683.00
Income Generated: $440.00
Net Profit: $257.00
Percent Return: 6.98%
Annualized Return: 20.71%
Duration of Trade: 123 days

Buy & Hold Comparison

Opening Price: $36.83
Closing Price: $35.29
P/L per Share: -$1.54
Shares: 100
Dividends: $11.00
Net Profit: -$143.00
Percent Return: -3.88%
Annualized Return: -11.52%
Duration of Trade: 123 days

Trade History:

19-Mar-07 - Initial Stock Position - BTO 100 ASF @ 36.83 -
19-Mar-07 - Initial Call Option - STO 1 Jul07 35.00 Call @ 4.29 - Exercised
29-Jun-07 - Dividend Received - DIV 100 Dividend @ 0.11 -
20-Jul-07 - Option Exercised - EX 1 Jul07 35.00 Call @ 35.00 -

UPS - Adjustment

The following adjustment was made today on UPS:

The UPS Jul07 75 call was ITM so I rolled it out to Oct07 and up to the 80 strike to avoid assignment. Normally I would have waited until there was little or no time value left, but since I'm going on vacation tomorrow I had to roll it today.

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 -

Current Position Summary:

Stock Investment: $7,193.00
Income Generated: $124.00
Percent Income Generated: 1.72%
Annualized Income Generated: 3.58%
Net Profit If Called: $931.00
Percent Return If Called: 12.94%
Annualized Return If Called: 26.84%
Days to Expiration: 176 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 -

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'll be on vacation starting Thu 7/19 and won't be back until Tue 7/24.
I usually try to avoid going anywhere during options expiration week, but some friends wanted to take a trip to Las Vegas and this weekend was best for everyone, except me. Oh well, it should be fun and I could use the rest.

I have one position to roll tomorrow before I head out of town early Thu morning, and about 10 positions that should close ITM and get called away this weekend. My July results won't be posted until sometime next week after I return.

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.

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