Good suggestions

Check these out. These points really do make a lot of sense. We are treading in a really uncertain territory here and although that happens to be a rich area for option traders, if not done properly, you can get burned easily.
By following a few simple rules, we can try our best to minimize damage.

Good rules to follow.

Jan 2009 Portfolio Performance Report - Summary

Here is the status of the portfolio at the end of Jan 2009.

Portfolio Details

• Inception date = 20081222
• Period start date = 20090101
  
• Period end date = 20090131
  
• Portfolio value at start = 100000
• Free cash at end of period = 372345
• Value of open positions at end = 631443
• Total Value at end = Cash at end + Value of open positions = 1003788

Return

• Jan 2009 Return = 0.38%
  
• Percentage return since inception = 0.38%

The current portfolio value reports can be accessed here.

Opened (BAC) March 2009 covered call position for BK OF AMERICA CP

A new covered calls position was established on January 29, 2009 with purchase of 3000 shares of "BK OF AMERICA CP" (BAC). Here are the details.

• Transaction Date = 20090129
• Ticker = (BAC)
• Company Name = BK OF AMERICA CP

Stock Leg (Buy)

• Number of shares purchased = 3000
• Price per share = 6.78
• Total money spent = 20340.0

Option Leg (Sell)

• Call Symbol = BYOCE
• Number of sold calls = 30
• Strike price = 5.0
• Strike date = 20090320
• Call premium = 2.4
• Total money received = 7200.0005
• Max. days for which position may stay open = 51

Return on investment (If calls are exercised)

• Initial investment = 13140.0
• Absolute return = 1860.0
• Percentage return = 14.15%
• Annualized percentage return = 101.26%

Break even Information

• Break even price point = 4.38
• Break even buffer percentage = 35.39%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 6.78 * 3000 = 20340.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 30 * 100 * 2.4 = 7200.0005

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 20340.0 - 7200.0005 = 13140.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 30 * 100 * 5.0 = 15000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 15000.0 - 13140.0 = 1860.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1860.0/13140.0) = 14.15%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 14.15 * 365/51 = 101.26%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 13140.0 / 3000 = 4.38
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (6.78 - 4.38) / 6.78 = 35.39%
This means that this position can weather a 35.39% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (PRU) June 2009 covered call position for PRUDENTIAL FINCL

A new covered calls position was established on January 29, 2009 with purchase of 1500 shares of "PRUDENTIAL FINCL " (PRU). Here are the details.

• Transaction Date = 20090129
• Ticker = (PRU)
• Company Name = PRUDENTIAL FINCL

Stock Leg (Buy)

• Number of shares purchased = 1500
• Price per share = 28.62
• Total money spent = 42930.0

Option Leg (Sell)

• Call Symbol = PRUFX
• Number of sold calls = 15
• Strike price = 20.0
• Strike date = 20090619
• Call premium = 12.4
• Total money received = 18600.0
• Max. days for which position may stay open = 142

Return on investment (If calls are exercised)

• Initial investment = 24330.0
• Absolute return = 5670.0
• Percentage return = 23.3%
• Annualized percentage return = 59.89%

Break even Information

• Break even price point = 16.22
• Break even buffer percentage = 43.32%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 28.62 * 1500 = 42930.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 15 * 100 * 12.4 = 18600.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 42930.0 - 18600.0 = 24330.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 15 * 100 * 20.0 = 30000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 30000.0 - 24330.0 = 5670.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (5670.0/24330.0) = 23.3%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 23.3 * 365/142 = 59.89%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 24330.0 / 1500 = 16.22
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (28.62 - 16.22) / 28.62 = 43.32%
This means that this position can weather a 43.32% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (AMZN) February 2009 covered call position for Amazon.com, Inc.

A new covered calls position was established on January 29, 2009 with purchase of 600 shares of "Amazon.com, Inc." (AMZN). Here are the details.

• Transaction Date = 20090129
• Ticker = (AMZN)
• Company Name = Amazon.com, Inc.

Stock Leg (Buy)

• Number of shares purchased = 600
• Price per share = 50.0
• Total money spent = 30000.0

Option Leg (Sell)

• Call Symbol = ZQNBI
• Number of sold calls = 6
• Strike price = 45.0
• Strike date = 20090220
• Call premium = 7.1
• Total money received = 4260.0
• Max. days for which position may stay open = 23

Return on investment (If calls are exercised)

• Initial investment = 25740.0
• Absolute return = 1260.0
• Percentage return = 4.89%
• Annualized percentage return = 77.6%

Break even Information

• Break even price point = 42.9
• Break even buffer percentage = 14.19%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 50.0 * 600 = 30000.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 6 * 100 * 7.1 = 4260.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 30000.0 - 4260.0 = 25740.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 6 * 100 * 45.0 = 27000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 27000.0 - 25740.0 = 1260.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1260.0/25740.0) = 4.89%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 4.89 * 365/23 = 77.6%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 25740.0 / 600 = 42.9
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (50.0 - 42.9) / 50.0 = 14.19%
This means that this position can weather a 14.19% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (AFL) May 2009 covered call position for A F L A C INC

A new covered calls position was established on January 26, 2009 with purchase of 2000 shares of "A F L A C INC" (AFL). Here are the details.

• Transaction Date = 20090126
• Ticker = (AFL)
• Company Name = A F L A C INC

Stock Leg (Buy)

• Number of shares purchased = 2000
• Price per share = 19.62
• Total money spent = 39240.0

Option Leg (Sell)

• Call Symbol = AFLEV
• Number of sold calls = 20
• Strike price = 12.5
• Strike date = 20090515
• Call premium = 8.8
• Total money received = 17600.0
• Max. days for which position may stay open = 110

Return on investment (If calls are exercised)

• Initial investment = 21640.0
• Absolute return = 3360.0
• Percentage return = 15.52%
• Annualized percentage return = 51.49%

Break even Information

• Break even price point = 10.82
• Break even buffer percentage = 44.85%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 19.62 * 2000 = 39240.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 20 * 100 * 8.8 = 17600.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 39240.0 - 17600.0 = 21640.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 20 * 100 * 12.5 = 25000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 25000.0 - 21640.0 = 3360.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (3360.0/21640.0) = 15.52%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 15.52 * 365/110 = 51.49%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 21640.0 / 2000 = 10.82
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (19.62 - 10.82) / 19.62 = 44.85%
This means that this position can weather a 44.85% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (PRU) March 2009 covered call position for PRUDENTIAL FINCL

A new covered calls position was established on January 26, 2009 with purchase of 1500 shares of "PRUDENTIAL FINCL " (PRU). Here are the details.

• Transaction Date = 20090126
• Ticker = (PRU)
• Company Name = PRUDENTIAL FINCL

Stock Leg (Buy)

• Number of shares purchased = 1500
• Price per share = 25.02
• Total money spent = 37530.0

Option Leg (Sell)

• Call Symbol = PRUCW
• Number of sold calls = 15
• Strike price = 17.5
• Strike date = 20090320
• Call premium = 9.2
• Total money received = 13800.0
• Max. days for which position may stay open = 54

Return on investment (If calls are exercised)

• Initial investment = 23730.0
• Absolute return = 2520.0
• Percentage return = 10.61%
• Annualized percentage return = 71.71%

Break even Information

• Break even price point = 15.82
• Break even buffer percentage = 36.77%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 25.02 * 1500 = 37530.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 15 * 100 * 9.2 = 13800.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 37530.0 - 13800.0 = 23730.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 15 * 100 * 17.5 = 26250.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 26250.0 - 23730.0 = 2520.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (2520.0/23730.0) = 10.61%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 10.61 * 365/54 = 71.71%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 23730.0 / 1500 = 15.82
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (25.02 - 15.82) / 25.02 = 36.77%
This means that this position can weather a 36.77% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (ROH) April 2009 covered call position for ROHM HAAS CO

A new covered calls position was established on January 26, 2009 with purchase of 600 shares of "ROHM HAAS CO" (ROH). Here are the details.

• Transaction Date = 20090126
• Ticker = (ROH)
• Company Name = ROHM HAAS CO

Stock Leg (Buy)

• Number of shares purchased = 600
• Price per share = 57.1
• Total money spent = 34260.0

Option Leg (Sell)

• Call Symbol = ROHDI
• Number of sold calls = 6
• Strike price = 45.0
• Strike date = 20090417
• Call premium = 16.4
• Total money received = 9840.0
• Max. days for which position may stay open = 82

Return on investment (If calls are exercised)

• Initial investment = 24420.0
• Absolute return = 2580.0
• Percentage return = 10.56%
• Annualized percentage return = 47.0%

Break even Information

• Break even price point = 40.7
• Break even buffer percentage = 28.72%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 57.1 * 600 = 34260.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 6 * 100 * 16.4 = 9840.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 34260.0 - 9840.0 = 24420.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 6 * 100 * 45.0 = 27000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 27000.0 - 24420.0 = 2580.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (2580.0/24420.0) = 10.56%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 10.56 * 365/82 = 47.0%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 24420.0 / 600 = 40.7
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (57.1 - 40.7) / 57.1 = 28.72%
This means that this position can weather a 28.72% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (AAPL) February 2009 covered call position for Apple Inc.

A new covered calls position was established on January 21, 2009 with purchase of 300 shares of "Apple Inc." (AAPL). Here are the details.

• Transaction Date = 20090121
• Ticker = (AAPL)
• Company Name = Apple Inc.

Stock Leg (Buy)

• Number of shares purchased = 300
• Price per share = 82.83
• Total money spent = 24849.0

Option Leg (Sell)

• Call Symbol = QAABP
• Number of sold calls = 3
• Strike price = 80.0
• Strike date = 20090220
• Call premium = 7.4
• Total money received = 2220.0
• Max. days for which position may stay open = 31

Return on investment (If calls are exercised)

• Initial investment = 22629.0
• Absolute return = 1371.0
• Percentage return = 6.05%
• Annualized percentage return = 71.23%

Break even Information

• Break even price point = 75.43
• Break even buffer percentage = 8.93%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 82.83 * 300 = 24849.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 3 * 100 * 7.4 = 2220.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 24849.0 - 2220.0 = 22629.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 3 * 100 * 80.0 = 24000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 24000.0 - 22629.0 = 1371.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1371.0/22629.0) = 6.05%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 6.05 * 365/31 = 71.23%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 22629.0 / 300 = 75.43
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (82.83 - 75.43) / 82.83 = 8.93%
This means that this position can weather a 8.93% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (JPM) March 2009 covered call position for JP MORGAN CHASE C

A new covered calls position was established on January 20, 2009 with purchase of 2000 shares of "JP MORGAN CHASE C" (JPM). Here are the details.

• Transaction Date = 20090120
• Ticker = (JPM)
• Company Name = JP MORGAN CHASE C

Stock Leg (Buy)

• Number of shares purchased = 2000
• Price per share = 18.09
• Total money spent = 36180.0

Option Leg (Sell)

• Call Symbol = JSACY
• Number of sold calls = 20
• Strike price = 12.5
• Strike date = 20090320
• Call premium = 7.0
• Total money received = 14000.0
• Max. days for which position may stay open = 60

Return on investment (If calls are exercised)

• Initial investment = 22180.0
• Absolute return = 2820.0
• Percentage return = 12.71%
• Annualized percentage return = 77.31%

Break even Information

• Break even price point = 11.09
• Break even buffer percentage = 38.69%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 18.09 * 2000 = 36180.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 20 * 100 * 7.0 = 14000.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 36180.0 - 14000.0 = 22180.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 20 * 100 * 12.5 = 25000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 25000.0 - 22180.0 = 2820.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (2820.0/22180.0) = 12.71%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 12.71 * 365/60 = 77.31%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 22180.0 / 2000 = 11.09
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (18.09 - 11.09) / 18.09 = 38.69%
This means that this position can weather a 38.69% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (USB) March 2009 covered call position for US BANCORP

A new covered calls position was established on January 20, 2009 with purchase of 2000 shares of "US BANCORP" (USB). Here are the details.

• Transaction Date = 20090120
• Ticker = (USB)
• Company Name = US BANCORP

Stock Leg (Buy)

• Number of shares purchased = 2000
• Price per share = 15.34
• Total money spent = 30680.0

Option Leg (Sell)

• Call Symbol = USBCB
• Number of sold calls = 20
• Strike price = 10.0
• Strike date = 20090320
• Call premium = 6.3
• Total money received = 12600.0
• Max. days for which position may stay open = 60

Return on investment (If calls are exercised)

• Initial investment = 18080.0
• Absolute return = 1920.0
• Percentage return = 10.61%
• Annualized percentage return = 64.54%

Break even Information

• Break even price point = 9.04
• Break even buffer percentage = 41.06%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 15.34 * 2000 = 30680.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 20 * 100 * 6.3 = 12600.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 30680.0 - 12600.0 = 18080.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 20 * 100 * 10.0 = 20000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 20000.0 - 18080.0 = 1920.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1920.0/18080.0) = 10.61%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 10.61 * 365/60 = 64.54%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 18080.0 / 2000 = 9.04
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (15.34 - 9.04) / 15.34 = 41.06%
This means that this position can weather a 41.06% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (PRU) March 2009 covered call position for PRUDENTIAL FINCL

A new covered calls position was established on January 20, 2009 with purchase of 2000 shares of "PRUDENTIAL FINCL " (PRU). Here are the details.

• Transaction Date = 20090120
• Ticker = (PRU)
• Company Name = PRUDENTIAL FINCL

Stock Leg (Buy)

• Number of shares purchased = 2000
• Price per share = 21.92
• Total money spent = 43840.0

Option Leg (Sell)

• Call Symbol = PRUCV
• Number of sold calls = 20
• Strike price = 12.5
• Strike date = 20090320
• Call premium = 10.5
• Total money received = 21000.0
• Max. days for which position may stay open = 60

Return on investment (If calls are exercised)

• Initial investment = 22840.0
• Absolute return = 2160.0
• Percentage return = 9.45%
• Annualized percentage return = 57.48%

Break even Information

• Break even price point = 11.42
• Break even buffer percentage = 47.9%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 21.92 * 2000 = 43840.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 20 * 100 * 10.5 = 21000.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 43840.0 - 21000.0 = 22840.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 20 * 100 * 12.5 = 25000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 25000.0 - 22840.0 = 2160.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (2160.0/22840.0) = 9.45%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 9.45 * 365/60 = 57.48%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 22840.0 / 2000 = 11.42
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (21.92 - 11.42) / 21.92 = 47.9%
This means that this position can weather a 47.9% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (MET) February 2009 covered call position for METLIFE INC

A new covered calls position was established on January 20, 2009 with purchase of 1000 shares of "METLIFE INC" (MET). Here are the details.

• Transaction Date = 20090120
• Ticker = (MET)
• Company Name = METLIFE INC

Stock Leg (Buy)

• Number of shares purchased = 1000
• Price per share = 23.82
• Total money spent = 23820.0

Option Leg (Sell)

• Call Symbol = METBD
• Number of sold calls = 10
• Strike price = 20.0
• Strike date = 20090220
• Call premium = 5.6
• Total money received = 5600.0
• Max. days for which position may stay open = 32

Return on investment (If calls are exercised)

• Initial investment = 18220.0
• Absolute return = 1780.0
• Percentage return = 9.76%
• Annualized percentage return = 111.32%

Break even Information

• Break even price point = 18.22
• Break even buffer percentage = 23.5%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 23.82 * 1000 = 23820.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 10 * 100 * 5.6 = 5600.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 23820.0 - 5600.0 = 18220.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 10 * 100 * 20.0 = 20000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 20000.0 - 18220.0 = 1780.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1780.0/18220.0) = 9.76%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 9.76 * 365/32 = 111.32%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 18220.0 / 1000 = 18.22
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (23.82 - 18.22) / 23.82 = 23.5%
This means that this position can weather a 23.5% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Returns for positions that closed in Jan 2009 - Summary

10 positions closed in Jan 2009. Here is the summary.

• Total money invested - 193638
• Total money collected - 197480
• Gains - 3842
• Percentage gains - 1.98%

Almost all positions did as expected. The biggest problematic position was (wfc), which suffered from heavy losses. Had I paid better attention to it, perhaps those could have been cut down.

On an average, these investments were live for about 2-3 weeks.

Closed (BTU) January 2009 covered call position

The (BTU) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = 20081226
• Ticker = (BTU)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (1000, 21.75, 20.0, 3.0, 18750.0)

The position was closed because options expired in the money and were called away.

Stock Leg (Sell)

• Number of shares sold = 1000
• Option strike price = 20.0
• Total money received = 20000.0

Option Leg (Buy)

• Call Symbol = BNUAD
• Strike price = 20.0
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 18750.0
• Absolute returns = 1250.0
• Percentage returns = 6.66%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = option strike price * number of shares
Money received = 20.0 * 1000 = 20000.0

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 20000.0 - 0.0 = 20000.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 20000.0 - 18750.0 = 1250.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1250.0/18750.0) = 6.66%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (PRU) January 2009 covered call position

The (PRU) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = 20081222
• Ticker = (PRU)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (1000, 26.35, 20.0, 7.4, 18950.0)

The position was closed because options expired in the money and were called away.

Stock Leg (Sell)

• Number of shares sold = 1000
• Option strike price = 20.0
• Total money received = 20000.0

Option Leg (Buy)

• Call Symbol = PRUAX
• Strike price = 20.0
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 18950.0
• Absolute returns = 1050.0
• Percentage returns = 5.54%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = option strike price * number of shares
Money received = 20.0 * 1000 = 20000.0

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 20000.0 - 0.0 = 20000.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 20000.0 - 18950.0 = 1050.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1050.0/18950.0) = 5.54%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (GNW) January 2009 covered call position

The (GNW) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = 20090105
• Ticker = (GNW)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (5000, 2.83, 2.5, 0.5, 11650.0)

The position was closed because options expired out of money.

Stock Leg (Sell)

• Number of shares sold = 5000
• Price per share = 2.38
• Total money received = 11900.001

Option Leg (Buy)

• Call Symbol = GNWAZ
• Strike price = 2.5
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 11650.0
• Absolute returns = 250.00098
• Percentage returns = 2.14%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = price per share * number of shares
Money received = 2.38 * 5000 = 11900.001

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 11900.001 - 0.0 = 11900.001

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 11900.001 - 11650.0 = 250.00098
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (250.00098/11650.0) = 2.14%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (ROH) January 2009 covered call position

The (ROH) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = 20081224
• Ticker = (ROH)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (500, 63.88, 45.0, 22.6, 20640.0)

The position was closed because options expired in the money and were called away.

Stock Leg (Sell)

• Number of shares sold = 500
• Option strike price = 45.0
• Total money received = 22500.0

Option Leg (Buy)

• Call Symbol = ROHAI
• Strike price = 45.0
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 20640.0
• Absolute returns = 1860.0
• Percentage returns = 9.01%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = option strike price * number of shares
Money received = 45.0 * 500 = 22500.0

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 22500.0 - 0.0 = 22500.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 22500.0 - 20640.0 = 1860.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1860.0/20640.0) = 9.01%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (AIZ) January 2009 covered call position

The (AIZ) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = 20081223
• Ticker = (AIZ)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (1000, 26.2, 22.5, 4.8, 21400.0)

The position was closed because options expired in the money and were called away.

Stock Leg (Sell)

• Number of shares sold = 1000
• Option strike price = 22.5
• Total money received = 22500.0

Option Leg (Buy)

• Call Symbol = AIZAX
• Strike price = 22.5
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 21400.0
• Absolute return = 1100.0
• Percentage return = 5.14%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = option strike price * number of shares
Money received = 22.5 * 1000 = 22500.0

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 22500.0 - 0.0 = 22500.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 22500.0 - 21400.0 = 1100.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1100.0/21400.0) = 5.14%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (AA) January 2009 covered call position

The (AA) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = 20090107
• Ticker = (AA)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (2000, 10.89, 10.0, 1.25, 19280.0)

The position was closed because options expired out of money.

Stock Leg (Sell)

• Number of shares sold = 2000
• Price per share = 9.43
• Total money received = 18860.0

Option Leg (Buy)

• Call Symbol = AAAB
• Strike price = 10.0
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 19280.0
• Absolute return = -420.0
• Percentage return = -2.17%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = price per share * number of shares
Money received = 9.43 * 2000 = 18860.0

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 18860.0 - 0.0 = 18860.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 18860.0 - 19280.0 = -420.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (-420.0/19280.0) = -2.17%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (WFC) January 2009 covered call position

The (WFC) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = 20090107
• Ticker = (WFC)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (1000, 25.87, 24.0, 2.8, 23070.0)

The position was closed because of safety check.

Stock Leg (Sell)

• Number of shares sold = 1000
• Price per share = 19.93
• Total money received = 19930.0

Option Leg (Buy)

• Call Symbol = WFCAH
• Strike price = 24.0
• Strike date = 20090116
• Number of bought calls = 10
• Call premium = 0.11
• Total money spent = 110.0

Return on investment

• Initial investment = 23070.0
• Absolute return = -3250.0
• Percentage return = -14.08%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = price per share * number of shares
Money received = 19.93 * 1000 = 19930.0

Option Leg (Buy)
Money spent = number of bought calls * 100 * call premium
Money spent = 10 * 100 * 0.11 = 110.0

Transaction
Total money received = Money received - Money spent
Total money received = 19930.0 - 110.0 = 19820.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 19820.0 - 23070.0 = -3250.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (-3250.0/23070.0) = -14.08%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (YHOO) January 2009 covered call position

The (YHOO) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = (20081224)
• Ticker = (YHOO)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (2000, 12.32, 11.0, 1.93, 20780.0)

The position was closed because options expired in the money and were called away.

Stock Leg (Sell)

• Number of shares sold = 2000
• Option strike price = 11.0
• Total money received = 22000.0

Option Leg (Buy)

• Call Symbol = YHQAK
• Strike price = 11.0
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 20780.0
• Absolute return = 1220.0
• Percentage return = 5.87%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = option strike price * number of shares
Money received = 11.0 * 2000 = 22000.0

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 22000.0 - 0.0 = 22000.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 22000.0 - 20780.0 = 1220.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1220.0/20780.0) = 5.87%

The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (ZION) January 2009 covered call position

The (ZION) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = (20081226)
• Ticker = (ZION)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (1000, 22.09, 20.0, 3.7, 18390.0)

The position was closed because safety check.

Stock Leg (Sell)

• Number of shares sold = 1000
• Price per share = 17.95
• Total money received = 17950.0

Option Leg (Buy)

• Call Symbol = ZNQAU
• Strike price = 20.0
• Strike date = 20090116
• Number of bought calls = 10
• Call premium = 0.05
• Total money spent = 50.0

Return on investment

• Initial investment = 18390.0
• Absolute return = -490.0
• Percentage return = -2.66%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = price per share * number of shares
Money received = 17.95 * 1000 = 17950.0

Option Leg (Buy)
Money spent = number of bought calls * 100 * call premium
Money spent = 10 * 100 * 0.05 = 50.0

Transaction
Total money received = Money received - Money spent
Total money received = 17950.0 - 50.0 = 17900.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 17900.0 - 18390.0 = -490.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (-490.0/18390.0) = -2.66%
The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Closed (ROH) January 2009 covered call position

The (ROH) January 2009 covered calls position was closed on January 16, 2009. Here are the details.

• Closing Transaction Date = 20090116
• Opening Transaction Date = (20090105)
• Ticker = (ROH)
• Opening Trade Details (Num shares, Price per share, Option strike price, Option premium, Initial investment) = (400, 63.82, 55.0, 12.0, 20728.0)

The position was closed because options expired in the money and were called away.

Stock Leg (Sell)

• Number of shares sold = 400
• Option strike price = 55.0
• Total money received = 22000.0

Option Leg (Buy)

• Call Symbol = ROHAK
• Strike price = 55.0
• Strike date = 20090116
• Total money spent = 0.0

Return on investment

• Initial investment = 20728.0
• Absolute return = 1272.0
• Percentage return = 6.13%

Detailed Calculations & Explanation

Stock Leg (Sell)
Money received = option strike price * number of shares
Money received = 55.0 * 400 = 22000.0

Option Leg (Buy)
No need to close option position.
Money spent = 0

Transaction
Total money received = Money received - Money spent
Total money received = 22000.0 - 0.0 = 22000.0

ROI calculations
Absolute returns = Total money received - Initial investment
Absolute returns = 22000.0 - 20728.0 = 1272.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1272.0/20728.0) = 6.13%
The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (WFR) February 2009 covered call position for MEMC ELECTRONIC M

A new covered calls position was established on January 13, 2009 with purchase of 2000 shares of "MEMC ELECTRONIC M" (WFR). Here are the details.

• Transaction Date = 20090113
• Ticker = (WFR)
• Company Name = MEMC ELECTRONIC M

Stock Leg (Buy)

• Number of shares purchased = 2000
• Price per share = 14.78
• Total money spent = 29560.0

Option Leg (Sell)

• Call Symbol = CJCBV
• Number of sold calls = 20
• Strike price = 12.5
• Strike date = 20090220
• Call premium = 3.2
• Total money received = 6400.0
• Max. days for which position may stay open = 39

Return on investment (If calls are exercised)

• Initial investment = 23160.0
• Absolute return = 1840.0
• Percentage return = 7.94%
• Annualized percentage return = 74.31%

Break even Information

• Break even price point = 11.58
• Break even buffer percentage = 21.65%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 14.78 * 2000 = 29560.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 20 * 100 * 3.2 = 6400.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 29560.0 - 6400.0 = 23160.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 20 * 100 * 12.5 = 25000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 25000.0 - 23160.0 = 1840.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (1840.0/23160.0) = 7.94%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 7.94 * 365/39 = 74.31%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 23160.0 / 2000 = 11.58
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (14.78 - 11.58) / 14.78 = 21.65%
This means that this position can weather a 21.65% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).
The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Opened (SWN) March 2009 covered call position for SOUTHWESTERN ENER

A new covered calls position was established on January 13, 2009 with purchase of 1000 shares of "SOUTHWESTERN ENER" (SWN). Here are the details.

• Transaction Date = 20090113
• Ticker = (SWN)
• Company Name = SOUTHWESTERN ENER

Stock Leg (Buy)

• Number of shares purchased = 1000
• Price per share = 29.5
• Total money spent = 29500.0

Option Leg (Sell)

• Call Symbol = SWNCE
• Number of sold calls = 10
• Strike price = 25.0
• Strike date = 20090320
• Call premium = 6.8
• Total money received = 6800.0
• Max. days for which position may stay open = 67

Return on investment (If calls are exercised)

• Initial investment = 22700.0
• Absolute return = 2300.0
• Percentage return = 10.13%
• Annualized percentage return = 55.18%

Break even Information

• Break even price point = 22.7
• Break even buffer percentage = 23.05%

Detailed Calculations & Explanation

Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 29.5 * 1000 = 29500.0

Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 10 * 100 * 6.8 = 6800.0

Transaction
Initial investment = Total money spent - Total money received
Initial investment = 29500.0 - 6800.0 = 22700.0

ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 10 * 100 * 25.0 = 25000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 25000.0 - 22700.0 = 2300.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (2300.0/22700.0) = 10.13%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 10.13 * 365/67 = 55.18%

Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 22700.0 / 1000 = 22.7
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (29.5 - 22.7) / 29.5 = 23.05%
This means that this position can weather a 23.05% drop in stock's price before losing any money.

The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).
The current portfolio details can be accessed here.

Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.

Excellent article about covered calls and alternatives

Jeff has written an excellent post on this. Thanks for sharing Jeff.

I sincerely urge all of you to go through it. He talks about alternatives to covered calls based investment strategy and analyzes each of those with some rigor.

A great read overall. Here is a link to the original post:

Stay with covered calls

10 positions will close on January 16 2009

Option expiration day for Jan 2009 (Jan 16) is approaching fast. (It is usually the third Friday for a given month). Currently, I have 10 open positions that will close on that day. I just did a quick health check on these positions and I am happy to report that all of them are doing very well so far.

So, unless there are some nasty moves, we are looking at fairly good gains. I will post details once these positions are closed.

Establishing a position -- How to?

I had promised that I will write a post about it. So here it goes.

My criteria for choosing a position is fairly straightforward. It consists of following:

1. There should be a good amount of buffer available to weather a potential downside.
2. There should be decent returns for the initial investment

In reality, these often contradict with each other and thus one needs to find the right balance.

Doing this requires some analysis and is quite painful if done manually. So, to do this efficiently, I have put together a system. My requirements were

1. The system should be completely automated (or automated at least for majority of the work)
2. The system should be very simple (and based on simple calculations)

In exchange, I am willing to monitor the positions fairly regularly (and act on them if deemed necessary).

So, here is my work-flow for choosing a position:

1. I have developed some scripts that fetch the data for both stock quotes as well as options quotes on a regular basis for a list of securities (Right now, my list is about 1000 tickers. I plan of expanding this soon.)
2. Once step #1 finishes, another set of scripts start looking at each stock (and corresponding options). Then for each stock/option combination (Note that there are multiple such combinations for a single stock), this step first computes max number of days a position may stay open for. After that, it computes two ratios: The break-even buffer percentage (expressed as current stock price) per day and max percentage gains this position may yield (if called of course) per day. A score (which is a monotonic and continuous function) is assigned based on these values for both ratios. Then a single score is assigned to each such position using a fairly simple formula, which combines these two scores into a single one based on relative importance with respect to each other. There is no exact science behind doing so. I have expressed these formulas using my beliefs/knowledge and I constantly tune them based on observed data points. So at the end of this, a score is assigned to all positions. Note that the score is normalized at this point (i.e. it is between 0 to 1) so that any two positions can be meaningfully compared. For me, higher scores indicate better positions.
3. Next, based on certain pre-determined thresholds, these scripts generate a list of about 10-20 positions on a daily basis that are deemed "best" according to their scores.
4. At this point, the process becomes manual. I personally look at each such position and decided whether to accept/reject it. I mostly look at very simple stuff like fundamentals of the company, market cap, cash position, eps etc. etc.

About 90% of this work is automated. These are really simple scripts that I coded up over an evening.

So that is it. If you are interested in any of the specifics, email me. We can start a conversation.

Hope all of this makes sense.