Update Transaction - Marathon Oil (MRO) (9/14/2009)

As I was going to be on vacation the week after option expiration, I began to roll out positions in my portfolio to October so as to reduce the amount of cash sitting useless the week after expiration. This was the first position to be rolled out as part of this plan. Marathon Oil has stayed in a relatively tight range between 31 and 34 for the past month and a half and I expect it to stay in this range in the near future, as oil oscillates between 65 and 75. Rolling this CSP forward to October does not change the annualized return. The new profit/loss info is below:

8/24/2009 -- Sold To Open 1 MRO September $31 Put @ 0.70
9/14/2009 -- Bought To Close 1 MRO September $31 Put @ 0.33
9/14/2009 -- Sold To Open 1 MRO September $31 Put @ 1.03

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: N/A

Possible Max Upside: 4.52%

Annualized Max Upside: 30.53%

Update Transaction - United States Natural Gas (UNG) (9/10/2009)

After a large increase in the share price of UNG in the beginning of September, I decided I had slightly over reacted by selling a $12 call for January, and decided to roll my January CC up to a $13 strike increasing my potential profit from near zero to a respectable number. The performance metrics are below:

7/23/2009 -- Bought 100 UNG @ 13.14
7/23/2009 -- Sold To Open 1 UNG July $13 Call @ 0.88
8/22/2009 -- Call Expired
8/30/2009 -- Sold To Open 1 UNG October $14 @ 0.25
9/2/2009 -- Bought To Close 1 UNG October $14 @ 0.18
9/2/2009 -- Sold To Open 1 UNG January $12 @ 0.68
9/10/2009 - Bought To Close 1 UNG January $12 @ 0.9
9/10/2009 -- Sold To Open 1 UNG January $13 @ 1.29

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1353.00

Downside Coverage: None

Possible Max Upside: 5.49%

Annualized Max Upside: 11.25%

Update Transaction - Intrepid Potash (IPI) (8/31/2009)

Intrepid Potash has been oscillating between about 22 and 26 dollars over the past few weeks, and with the the market continuing to drive higher with no intention of falling back, I decided to roll my IPI call to October at a slightly lower strike in order to hedge my risk as well as increase the risk of the stock being called away at October expiration. The performance metrics are below:

7/30/2009 -- Bought 100 IPI @ 26.70
7/30/2009 -- Sold To Open 1 IPI $27 August Call @ 1.54
7/30/2009 -- Bought To Open 1 IPI $22 August Put @ 0.45
8/21/2009 -- Call Expired
8/24/2009 -- Sold To Open 1 IPI $28 September Call @ 0.7
8/26/2009 -- Bought To Open 1 IPI $21 September Put @ 0.25
8/31/2009 -- Bought To Close 1 IPI $28 September Call @ 0.10
8/31/2009 -- Sold To Open 1 IPI $27 October Call @ 0.50



The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2561.00
Current Cost Average: $24.76

Possible Max Upside: 8.90%

Annualized Max Upside: 41.13%

August 2009 Results

The month of August was unfortunately the first negative month for the CCIP. The portfolio was dragged down by the horrible performance of UNG which reduced the overall portfolio performance of the CCIP by about 3%. Premiums have continued to decline as the VIX has stayed in a relatively low range which has been helpful to those who wish to cover downside risk by purchasing protective puts, but not for those looking to sell premium. Every once in a while an investment choice does not do what you expect, and this possibility has to always be considered when selecting asset allocation. As I noted in my post on asset allocation within a covered call portfolio it is extremely important not to weight any one of your positions too heavily. Unfortunately, UNG represented about 10% of my overall portfolio, and so its 30% decline substantially impacted overall portfolio performance. The fact that the overall portfolio only dropped slightly was a testament, however, to the successful choices in other parts of the portfolio.

Unfortunately, as well as the under-performance by the CCIP in August, the portfolio has also lost much of the ground it had over the benchmark, S&P 500. Although it is still ahead of the market, its "lead" has been reduced. This brings up an important point regarding a covered call portfolio, as well as the general strategy of the CCIP. It is my intention, not to necessarily consistently beat the market, but instead to provide a constant return of at least 10%. However, this is not to say that I do not want to maximize my possible returns. This is why I have adopted additional strategies to enhance my returns. These include the new ex-dividend date strategy which thus far has been executed 3 times, one of these times being called away successfully at the ex-div date. The second strategy involves purchasing an OTM SPY call in order to participate in additional upside if the market increases substantially over a month.

The portfolio continues to beat the market since its inception (by about 7.5%). The chart below presents the monthly performance of the CCIP for August, as well as the performance of the portfolio since inception.

Portfolio Results

The 2009 Since Inception results are as follows:

1. Since Inception Results

CCIP Absolute Return (March 7 through August 31, 2009) = 54.06%

Benchmark S&P 500 (SPY) Absolute Return (March 7 through August 31, 2009) = 46.54%

The CCIP has outperformed the S&P 500 benchmark by a total of 7.54%

September 2009 Next Steps

The month of September is going to be a real test for the rally's strength. The summer vacation is over, and reality is beginning to set in. Third quarter earnings will start this month, and will ultimately determine the direction of the market. Companies will now have to show that after substantially cutting costs they can start to increase sales.

The CCIP has made a bit of a change of direction as well over the last two months, as I have added additional strategies such as cash-secured puts, OTM calls, and the ex-dividend date strategy. Additionally, I have adopted a new type of allocation strategy which focuses on reducing risk, and centering strategy around specific annualized return goals.

Unfortunately, I will be going on vacation the week after expiration and will not have access to the internet. This obviously makes option roll-over a bit difficult. As a result I will most likely be closing ITM positions on the Thursday prior to expiration, and then opening new positions on expiration Friday. This may result in losing out on about 0.25% of gains, but it is better than missing a week of market action

The strategy for establishing covered calls positions after September expiration will depend on what positions close ITM at expiration. I will establish new positions based upon my new annualized return asset allocation strategy.

As always, please post any thoughts or questions you have regarding the CCIP and the posts on the blog.

Update Transaction - United States Natural Gas (UNG) (9/2/2009)

As I noted in my previous post regarding UNG, it would seem that the bottom has fallen out of natural gas recently. As such, I have decided to focus on simply recouping my losses rather than looking to make a hefty profit. As such I sold a $12 January call which is below my original purchase price. The performance metrics are below:

7/23/2009 -- Bought 100 UNG @ 13.14
7/23/2009 -- Sold To Open 1 UNG July $13 Call @ 0.88
8/22/2009 -- Call Expired
8/30/2009 -- Sold To Open 1 UNG October $14 @ 0.25
9/2/2009 -- Bought To Close 1 UNG October $14 @ 0.18
9/2/2009 -- Sold To Open 1 UNG January $12 @ 0.68

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1353.00

Downside Coverage: None

Possible Max Upside: 0.10%

Annualized Max Upside: 0.21%

Initial Transaction - Life Partners Holdings Inc. (LPHI) (8/31/2009)

This is a new position in the Covered Call Investor's Portfolio. I found this particular stock by doing a scan for stocks which are trading within 30% of their 52-week lows. I then reviewed the stocks which passed this filter for those with greater than 3% dividends. This resulted in about 100 stocks to consider. When I look for a stock to place in the covered call position, I normally want something which is not trading at the high end of its range, because any pullback in the market could result in a drastic pullback in the stock itself. Life Partners Inc., was one of the few stocks which met this requirement. The stock also sports an above average dividend yield of 5%. LPHI is essentially a type of investment fund for wealthy individuals. They purchase life insurance policies in the secondary market for wealthy individuals who continue to pay the premiums and then collect the funds when the underwritten individual passes. This is a relatively morbid business, but it is also one which I believe will perform well in the economic climate. The company has no debt, and is growing rapidly, as such I believe it will be a good addition to the CCIP. I considered selling a $14.50 strike put originally but the premiums had dropped by about 25% over the weekend and so I decided to go with the $17.50 CC instead. The profit/loss info is below:

8/31/2009 -- Bought 100 LPHI @ 17.48
8/31/2009 -- Sold To Open 1 LPHI October $17/50 Call @ 1.51

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: $1597.00

Downside Protection: 8.6%

Potential Gain If Called At Expiration: 7.04%

PotentialAnnualized Gain If Called At Expiration: 54.65%

Update Transaction - United States Natural Gas (UNG) (9/2/2009)

The price of natural gas has continued to fall, and UNG has been a massive drag on the CCIP. I dont think anyone expected natural gas prices to continue falling, and the current regulatory issues facing UNG itself are not making things easier. As a result I had purchased a protective put against one of my UNG positions on 8/28/2009, and then sold it on 9/2/2009 after continued downward movement by UNG, as I result I have lowered my overall cost basis. I also sold a January call, as I dont foresee UNG rising very substantially in the near future as it still trades at a premium to its NAV. The new profit/loss info is below:

6/10/2009 -- Bought 100 UNG @ 14.50
6/10/2009 -- Sold To Open 1 UNG July $15 Call @ 0.97
7/6/2009 -- Bought To Close 1 UNG July $15 Call @ 0.15
7/17/2009 -- Sold To Open 1 UNG August $15 Call @ 0.45
8/22/2009 -- Call Expired
8/28/2009 -- Bought To Open 1 UNG October $10 Put @ 0.65
9/1/2009 -- Sold To Open 1 UNG January '10 Call @ 0.50
9/2/2009 -- Sold To Close 1 UNG October $10 Put @ 0.95


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1353.00


Downside Coverage (from current price): None
Possible Max Upside: 11.6%

Annualized Max Upside: 19.34%

Dividend Payment - Lockheed Martin (LMT) (8/28/2009)

This is an update to the position in Lockheed-Martin (LMT) which passed an ex-dividend date. The new profit/loss info is below:

8/25/2009 -- Bought 100 LMT @ 74.30
8/25/2009 -- Sold To Open 1 LMT September $75 Call @ 1.30
8/28/2009 -- Dividend @ 0.57

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: 7300.00

Potential Gain If Called At Expiration: 3.52%
PotentialAnnualized Gain If Called At Expiration: 51.40%

Update Transaction - Intrepid Potash (IPI) (8/26/2009)

As the stock market has started to turn downward recently, and China announcing its large purchases of commodities, which have been somewhat artificially driving up commodity prices, some of the commodity players have been falling in price. In order to hedge myself somewhat on the downside I decided to buy a $21 put for protection. The performance metrics are below:

7/30/2009 -- Bought 100 IPI @ 26.70
7/30/2009 -- Sold To Open 1 IPI $27 August Call @ 1.54
7/30/2009 -- Bought To Open 1 IPI $22 August Put @ 0.45
8/21/2009 -- Call Expired
8/24/2009 -- Sold To Open 1 IPI $28 September Call @ 0.7
8/26/2009 -- Bought To Open 1 IPI $21 September Put @ 0.25



The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2561.00
Current Cost Average: $25.16

Possible Max Upside: 11.29%

Annualized Max Upside: 80.78%