Opened (AKS) Feb 2009 covered calls position for AK STEEL HLDG CO

A new covered calls position was established on December 30, 2008 with purchase of 2000 shares of "AK STEEL HLDG CO (AKS).

Quick Summary
(date, ticker, num_shares, price per share, shares money out, strike date, strike price, premium, options money in, total money out) = (20081230, AKS, 2000, 8.85, 17700, 20090220, 7.50, 2.20, 4400, 13300)

Detailed Information

Stock Leg (Buy)

• Stock ticker = AKS
  
• Company name = "AK STEEL HLDG CO"
  
• Number of shares bought = 2000
  
• Price per share = 8.85
  
• Total money spent = 17700

Option Leg (Sell)

• Call Symbol = ASJBU
  
• Strike date = 20090220
  
• Strike price = 7.50
  
• Number of calls sold = 20
  
• Premium per call = 2.20
  
• Total call premium received = 4400
  

Transaction

• Total money out = (17700 - 4400) = 13300
• Initial investment = 13300
  

Returns (If calls get exercised)

• Absolute returns = 15000 (strike price * num_shares) - 13300 (Initial investment) = 1700
  
• Percentage returns = (absolute returns/initial investment * 100) = 12.78%
• Max. number of days position will be open = 20090220 (strike date) - 20081229 (transaction date) = 53
  
• Annual percentage returns (Normalized returns over 365 days) = (12.78 * 365 / 53) = 88.01%

Break Even Information

• Break-even point = 13300 (Initial investment)
• Break-even buffer percentage = 8.85 (current price) - 6.65 (break even point/num_shares))/8.85 * 100) = 24.86% [This means that this position can wither a 24.86% drop in stock's price before losing any money).
  

Date (position established): 2008/12/30

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.