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 ;-)
Saturday, September 29, 2007
Friday, September 28, 2007
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.
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.
Thursday, September 27, 2007
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
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
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
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
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
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
Monday, September 24, 2007
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.
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 -
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 -
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 -
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 -
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 -
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 -
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 -
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 -
Sunday, September 23, 2007
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 -
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 -
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 -
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 -
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 -
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 -
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 -
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 -
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 -
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 -
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 -
Friday, September 21, 2007
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.
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.
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.
Sunday, September 16, 2007
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.
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
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
Saturday, September 8, 2007
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.
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.
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.
Friday, September 7, 2007
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.
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.
Thursday, September 6, 2007
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 -
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 -
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 -
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