Update Transaction - Direxion 3x Financial (FAS) (6-25-2009)

As I mentioned in my post concerning ANR, it seems that option premiums for July are baking in a very volatility until expiration. For FAS specifically, premiums have been slashed dramatically since I started taking positions in it in March. I decided to establish an August call for one of my FAS positions leaving me with only one which remains uncovered. For that position I hope to see a rise in FAS to around $11 for me to sell another call. The new profit/loss projections are below:

4/14/2009 -- Bought 100 FAS @ 9.245
4/14/2009 -- Sold To Open 1 FAS May $9 Call @ 0.9
4/15/2009 – Bought To Close 1 FAS May $9 Call @ 0.25
4/15/2009 – Sold To Open 1 FAS May $10 Call @ 0.95
5/15/2009 – May $10 Call Expired
5/18/2009 – Sold To Open 1 FAS June $10 Call @ 1.05
6/19/2009 - Covered Call Expired
6/26/2009 - Sold To Open 1 FAS August $10 Call @ 0.85


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $924.50
Current Cost Basis: $5.75


Downside Coverage From Current Price: 41.5%
Possible Max Upside: 50.99%

Annualized Max Upside: 143.16%

Update Transaction - Alpha Natural Resources (ANR) (6-25-2009)

After about a 10% rebound from its recent low, ANR got back up around $26. I noticed an interesting dynamic occurring in the option prices for July and August however. The $30 July call option was hardly moving while the stock price would oscillate about 50 cents. The $30 August call option on the other hand was tracking the stock price movement fairly closely. I checked the annualized gain if I sold a July call vs an August call and found that the August call actually yielded a higher annualized return. As a result, I decided to sell an August call instead. The new purchase metrics are below:

5/20/2009 -- Bought 100 ANR @ 29.26
5/20/2009 -- Sold To Open 1 ANR June $32.50 Call @ 1.24
5/20/2009 -- Bought To Open 1 ANR June $20 Put @ .3
5/21/2009 -- Bought To Close 1 ANR June $32.50 Call @ .55
5/22/2009 -- Sold To Open 1 ANR June $27.50 Call @ 1.45
5/27/2009 -- Bought To Close 1 ANR $27.50 Call @ 2.18
5/27/2009 -- Sold To Open 1 ANR $30 June Call @ 1.09
6/16/2009 -- Bought To Close 1 ANR $30 June Call @ 0.15
6/16/2009 -- Bought To Open 1 ANR $20 June Put @ 0.5
6/25/2009 -- Sold To Open 1 ANR $30 August Call @ 1.90



The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2926.00
Current Cost Basis: $27.26


Maximum Downside Risk (due to Put): 26%
Downside Coverage: None
Possible Max Upside: 9.78%

Annualized Max Upside: 37.97%

Update Transaction - Bristol-Myers Squibb (BMY) (6-25-2009)

Bristol-Myers Squibb has continued to oscillate between $19 and $21 since I purchased it in April. I have kept this position because as I mentioned in my asset allocation post, it is very important to make sure you are diversified in your portfolio. You cant always chase stocks that have the highest returns, because they are often in the same sector and can be very risky. BMY adds a low risk, high dividend position to the portfolio.

In the past few days there has been a very large run-up in the price of BMY, as a result of a shift in the market towards healthcare stocks. Unfortunately, the July premiums for BMY are not very good, and it will pay a dividend in early July, so I do not want it called away before then. As such, I sold an august call with a strike more than 5% above the current price. My new plan for BMY is to sell 2 month out calls, unless there is some event which boosts current month premiums. The new profit/loss info is below:

4/6/2009 -- Bought 100 BMY @ 20.48
4/6/2009 -- Sold To Open 1 BMY April $21 Call @ .34
4/17/2009 -- Covered Call Expired
4/20/2009 -- Sold To Open 1 BMY May $21 Call @ .65
4/29/2009 -- Bought To Close 1 BMY May $21 Call @ .11
5/12/2009 -- Sold To Open 1 BMY June $21 Call @ .55
5/27/2009 -- Bought To Close 1 BMY June $21 Call @ .18
6/25/2009 -- Sold To Open 1 BMY August $22 Call @ .35


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2048.00


Downside Coverage (from current price of $20.89): 9.6%
Possible Max Upside: 15.49%

Annualized Max Upside: 40.97%

Update Transaction - Mack-Cali Realty (CLI) (6-23-2009)

As I mentioned in my last post on CLI, I am trying to exit part of my position to reduce the 30% weighting which it holds in my portfolio. As such I have previously sold a $22.50 Call and will now sell a $20 call. If this call expires out of the money I while be extremely surprised. Additionally, the ex-dividend date is July 1st, so I assume the stock will be called away if it is above $21.70 on June 30. The profit/loss info is below:


Various -- Bought 100 CLI @ 18.80
3/2/2009 -- Sold To Open 1 CLI July $22.5 Call @ 1.2225
4/1/2009 – CLI Dividend @ .45
4/16/2009 – Bought To Close 1 CLI July $22.5 Call @ 4.45
4/16/2009 – Sold To Open 1 CLI May $25 Call @ 1.7
5/15/2009 – May $25 Call Expired
5/18/2009 – Sold To Open 1 CLI June $22.50 Call @ 2.75
6/19/2009 - June $22.50 Call Expired
6/23/2009 - Sold To Open 1 CLI July $20.00 Call @ 1.70

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1880.00


Downside Coverage From Current Price: 28.5%
Possible Max Upside: 26.01%

Annualized Max Upside: 68.8%

Update Transaction - Best Buy (BBY) (6-23-2009)

Unfortunately, Best Buy has not rebounded from its fall after the earnings release. I decided to just go ahead and sell a $38 call in order to at least get some premium while waiting for it to rebound. I thought it best to do so now because option premiums are very quickly decreasing for July both as a result of the shorter time to expiration and a decreasing VIX. The new purchase metrics are below:

6/12/2009 -- Bought 100 BBY @ 37.54
6/12/2009 -- Sold To Open 1 BBY July $39 Call @ 1.54
6/12/2009 -- Bought To Open 1 BBY June $35 Put @ 0.6
6/18/2009 -- Bought To Close 1 BBY July $39 Call @ 0.50
6/18/2009 -- Sold To Close 1 BBY June $35 Put @ 1.1
6/23/2009 -- Sold To Open 1 BBY July $38 Call @ 0.20



The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $3660.00


Downside Coverage: None
Possible Max Upside: 6.11%

Annualized Max Upside: 61.96%

Bond ETF Covered Calls

In reference to comments received from CCWriter in my post regarding asset allocation, I wanted to give a brief post about Bond ETF covered calls. I did a quick search of the landscape and found the following.

There are 14 Taxable Bond ETF's and 1 Municipal Bond ETF which offers options. Of those ETF's, 8 actually had both enough interest, and an OTM option premium which had a bid price above 0.

This screen left me with the following ETFs:

iShares Barclays 20+ Year Treasury Bond (TLT)
iShares Barclays 7-10 Year Treasury Bond (IEF)
iShares Barclays TIPS Bond (TIP)
iShares Barclays Aggregate Bond (AGG)
iShares iBoxx $ High Yield Corporate (HYG)
iShares iBoxx $ Invest Grade Corporate (LQD)
UltraShort 7-10 Year Treasury ProShares (PST)
UltraShort 20+ Year Treasury ProShares (TBT)

I would personally not recommend investing in the ultrashort bond etf's mostly on principle, though they do provide the highest possible returns.

Of the other Bond ETFs listed above only TLT, IEF, and HYG would result in a greater than 1% return if you sold the OTM call immediately above the current price. This is assuming the bid price is your option premium, and no commissions. I would point out however, that only the IEF and TLT have bid/ask spreads that are less than 20% apart from each other. This is important when considering options because it generally means there is adequate liquidity in the options for that stock/etf.

I hope this has helped those of you who are considering a Bond ETF covered call as it has been quite an informative exercise for me.

Covered Call Investing Strategies: Asset Allocation

Here is the first installment in the Covered Calls Investing Strategies Series: Asset Allocation

Asset allocation is a topic that seems to be missing from both many investors portfolio’s as well as many of the covered call bloggers which I have been following in order to write these segments. The general lack of diversification both between stocks and bonds as well as different sectors within the stock market has been covered widely by the media since the recession began. Many retirees fell victim to the “target-date” retirement funds which supposedly offered diversification based on an estimated year of retirement. Unfortunately, many soon to be retirees found out that these funds which much riskier, and much more heavily invested in equities than they should have been. As such, I think it is very important that any investor, be it a covered call investor or otherwise make sure that they are diversified.

For the covered call investor, the premise of asset allocation and diversification poses an interesting question. Due to the income generating nature of covered calls, is it important to have bond-like instruments in your covered call portfolio? Only one of the covered call bloggers (https://coveredwriter.blogspot.com ) has a bond etf as part of his portfolio, though he is the only person to do so. Generally, a bond etf does not have very high premium options, if it has options at all. This presents a difficult situation because in many cases it is not even possible to establish a covered call position. As such, it is my opinion that you cannot effectively include a bond position in your covered call portfolio. However, it is also my belief that you should have some bond etfs as part of your total investment portfolio.

In terms of diversification within equities, there are a few different factors to consider. The first factor is global diversification. As the US is becoming an increasingly smaller portion of the world economy, it is not wise to not carry any international stocks in your covered call portfolio. Jeff Partlow, the covered calls advisor presents his view of this fact in the following post http://coveredcallsadvisor.blogspot.com/2007/12/international-investing.html. As Jeff also notes, you must also have sector diversification. His suggestion is to invest in at least five of the following six sectors: Consumer (Staples & Discretionary), Energy (includes Materials), Financial, Industrial (includes telecom and utilities), Health Care, and Information Technology. I would personally not place telecom and utilities in the industrials bucket, but it is often hard to find mutually exclusive sectors. Where Jeff and I do agree is that diversification does not necessarily mean that you spread your investments equally across all sectors. There is some level of investing insight you must use from your own knowledge and experience to determine when you should overweight or underweight yourself in a particular area. As an example, when commodity prices hit their bottom in Jan-Feb of this year, a good move would have been to overweight yourself in energy and materials stocks. However, you must also know when to get out of a sector that has exploded. In the summer of last year, when oil prices were marching towards $200, and commodities were making new records every day, a wise move would have been to reduce your holdings in energy and materials stocks.

It is obviously difficult to diversify well, especially in a covered call portfolio (due to the need to purchase at least 100 shares of each stock) when you do not have a large amount of funds. However, you can always complement your covered calls positions with non-covered call positions where you hold less shares. Additionally, you could use etf’s which track various market indices to give yourself broad diversification and also allow yourself to write covered calls. Such etf’s include FXI, which tracks the China market, EWZ which tracks brazil, SPY which tracks the S&P 500 and others.

I would lastly like to point out that in my view asset allocation for a covered calls investor should include a portion of the portfolio is not covered. My personal method for this is to hold a few index ETF’s so that I add another layer of uncapped diversification. Although covered call writing provides downside protection which an index etf will not, it also provides a cap to your upside. Allowing for non-covered call positions in your portfolio will allow you to capture additional gains that you may miss if your entire portfolio is covered.

I hope that this post has been useful, and please comment if you have any other topics within asset allocation you would like me to discuss. I would also encourage the other covered call bloggers to post with their own comments on what I have said. Look for the next post in the covered call investing strategies series sometime in the next couple weeks. The topic will be the covered call position selection strategy.

Initial Transaction - ConocoPhillips (COP) (6-22-2009)

This position is in ConocoPhillips, a diversified oil & gas company. I have been eyeing this stock for quite a while, but was hesitant to pull the trigger due to the run-up in oil prices driving the price up to about $48 in the beginning of June. The market pullback on monday and tuesday provided a great entry point, allowing me to get into the stock at about $40, a price not seen since the end of April. Conoco is one of the better regarded integrated oil companies, and pays a very nice 4.5% dividend. The profit/loss info is below:

6/22/2009 -- Bought 100 Shares of COP @ 40.56
6/22/2009 -- Sold To Open 1 July $42.00 Call @ 0.96


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $3960.00


Downside Coverage: 2.37%
Possible Max Upside: 5.93%

Annualized Max Upside: 83.31%

Initial Transaction - Regency Centers Corporation (REG) (6-22-2009)

This position is in Regency Centers Corporation which is a REIT (Real Estate Investment Trust). It is my intention that this will replace part of the CLI position which will hopefully be called away at expiration (at least partially). I would like to have a couple REIT's in my portfolio as they pay very good dividends (though the dividends are taxed as ordinary income, this is a key point), and they have also been battered mercilessly. REG in particular is an interesting REIT because it owns shopping centers which are anchored by grocery stores, and mostly in affluent areas. They have a very good cash position, and pay about a 5% dividend. They also recently did a share offering at $32.50 and have basically stayed above that price since the share offering which shows underlying strength in the stock. The profit/loss info is below:

6/22/2009 -- Bought 100 Shares of REG @ 34.025
6/22/2009 -- Sold To Open 1 July $35.00 Call @ 1.41


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $3261.50


Downside Coverage: 4.1%
Possible Max Upside: 7.16%

Annualized Max Upside: 100.51%

Continuing Transaction - Mack-Cali Realty (CLI) (6-22-2009)

In order to again attempt to relinquish some of my position in Mack-Cali realty, I am selling a July $22.50 call. Hopefully this results in these 100 shares being called away, but as I have said many times before this stock is still a quality one, so if I am still left with these shares at expiration all would not be lost. The only question mark which exists is if the shares will be called away before July 1st, which is the ex-dividend date. I plan to leave at least half of my position in Mack-Cali uncovered until after the ex-div date to reap at least some of the benefit. The profit/loss info is below:

Various -- Bought 100 Shares of CLI @ 21.18
3/2/2009 -- Sold To Open 1 July $22.50 Call @ 1.2225
3/10/2009 -- Bought To Close 1 July $22.50 Call @ 1
4/1/2009 -- Dividend @ 0.45
4/3/2009 -- Sold To Open 1 May $22.50 Call @ 2.50
5/15/2009 -- May $22.50 Expired
5/18/2009 -- Sold To Open 1 June $25 Call @ 0.95
6/19/2009 -- June $25 Call Expired
6/22/2009 -- Sold To Open 1 July $22.50 Call @ 0.75

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2118.00


Downside Coverage (based on current price, 21.50): 24.37%
Possible Max Upside: 31.27%

Annualized Max Upside: 82.70%

Covered Call Investing Strategies

I wanted to give a brief update to those of you who are awaiting the posts on various covered call investing strategies in the blogosphere. I plan to publish the first installment (Asset Allocation) sometime in the next week. In the meantime I am going to be testing out a new "covered call position selector" over the next few months mostly in virtual form (rather than establishing real covered call positions) to see if it is a good strategy. The information which I will be using is:

• Assigned Rate of Return
• Distance from 52-Week High
• Distance from 52-Week Low
• Downside Protection (or return if not called)
• Dividend Yield
• Earnings Date
• The # of Days since the stock last closed below the covered call cost-averaged price
• An Average of analyst ratings at TD Ameritrade (this includes thestreet.com, ford equity research, s&p, and others)

All of the stocks that were evaluated came from either other covered call bloggers portfolios, financial magazines, or are stocks which I have simply heard mentioned in the news or other mediums. As the months go by I will most likely expand this starting list. I will use the Top 10 stocks on the list each month. The option premiums will be the current bid price. All cost averaged prices and returns include $15 in trading commissions.

For this month, the virtual trades that will be entered as of mondays close are:

PP = Purchase Price
OS = Option Strike
OP = Option Premium
CA = Cost Averaged Price
IF = Return If Called
DP = Downside Protection

Regency Centers (REG) - PP=34.66, OS=35, OP=1.75, CA=33.06, IF=5.87%, DP=5%

MEMC Electronic Materials (WFR) - PP=19.14, OS=19, OP=1.45, CA=17.84, IF=6.5%, DP=6.5%

CBS (CBS) - PP=7.34, OS=7.5, OP=0.5, CA=6.99, IF=7.3%, DP=5.76%

Simon Property Group - PP=52.92, OS=55, OP=2.1, CA=50.97, IF=7.91%, DP=3.93%

Schlumberger - PP=55.35, OS=55, OP=2.95, CA=52.55, IF=4.66%, DP=4.66%

BHP Billiton (BHP) - PP=56.1, OS=57.5, OP=2.3, CA=53.95, IF=6.58%, DP=4.08%

Joy Global (JOYG) - PP=36.6, OS=36, OP=2.7, CA=34.05, IF=5.73%, DP=5.73%

McGraw Hill (MHP) - PP=29.69, OS=30, OP=1.15, CA=28.69, IF=4.57%, DP=3.67%

Sandisk (SNDK) - PP=14.56, OS=15, OP=0.84, CA=13.87, IF=8.15%, DP=5.35%

Diamond Offshore - PP=87.67, OS=90, OP=2.8, CA=85.02, IF=5.86%, DP=3.18%

I will give an update at the end of each week how this basket of covered call positions is doing vs. the S&P 500 index.

As always, feel free to comment if you have any thoughts or questions.

Update Transaction - Direxion 3x Financial (FAS) (2)

As FAS began to plummet today, I decided to sell a $10 call for July on part of my position in FAS in order to have some coverage in case the ETF stays under $9 for an extended period of time. Although the premium was not large on an absolute basis, it is about a 5% return if the ETF is unchanged at expiration. The purchase info is below:

5/21/2009 -- Bought 100 FAS @ 9.045
5/21/2009 -- Sold To Open 1 FAS June $10 Call @ 0.86
5/21/2009 -- Bought To Open 1 FAS June $8 Put @ 1
6/19/2009 -- Covered Call & Put Expired
6/22/2009 -- Sold To Open 1 FAS July $10 Call @ 0.5


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $904.50


Downside Coverage (based on current price): None
Possible Max Upside: 16.07%

Annualized Max Upside: 101.1%

Update Transaction - Direxion 3x Financial (FAS) (1)

After a complete bashing of FAS today I bought back the July $11 call I had sold last week, and plan to sell a new $11 call once the ETF rebounds a bit. I am aiming for about $.65-.75 for the new option premium for July. The new profit/loss projections are below:

4/17/2009 -- Bought 100 FAS @ 9.745
4/17/2009 -- Sold To Open 1 FAS May $8 Call @ 2.65

5/7/2009 – Bought To Close 1 FAS May $8 Call @ 3.55

5/7/2009 – Sold To Open 1 FAS May $10 Call @ 1.95

5/15/2009 – May $9 Call Expired

5/18/2009 – Sold To Open 1 FAS June $11 Call @ 0.95
6/15/2009 -- Bought To Close 1 FAS June $11 Call @ 0.25
6/15/2009 -- Sold To Open 1 FAS July $11 Call @ 0.90
6/22/2009 -- Bought To Close 1 FAS July $11 Call @ 0.35


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $974.50


Downside Coverage From Current Price (8.10): 8.2%
Possible Max Upside: Unlimited

Annualized Max Upside: Unlimited

June 2009 Expiration Day

The Covered Calls Investor Portfolio contained a total of 9 positions with June 2009 expirations, and 10 positions either with a Non-June expiration or no current covered call. The 9 positions with May expirations had the following results:

- 2 positions (FAS, UNG) closed in-the-money. The calls were exercised and the stock was sold. Slightly dissapointing only two positions ended in-the-money, I was hoping for a large cash position to start out new covered call positions. The annualized gain/loss results (after commissions) were:

Direxion 3x Financial Bull (FAS) => +315.21%
United States Natural Gas => +113.57%


- 7 positions in the portfolio (T, CLI(4), FAS(2)) ended out-of-the-money. Similar to last month, CLI and FAS were in-the-money in the days preceding expiration and fell perilously a few days before lea.


AT&T (T) - $24.04
100 Shares with Current Cost Basis of $21.92

This position will be kept, due to the 7.5% dividend yield (based on current cost basis). This stock has not really moved since falling under $25 in the middle of May, it has held up above support at $24 however. Due to the current uncertainty surrounding the market's rally, I will continue to hold AT&T as a defensive play. If the $26 call can make its way up to about $.40 for July I will sell it, otherwise I will remain uncovered.

Mack-Cali Realty (CLI) - $22.34
100 Shares with Current Cost Basis of $17.01
100 Shares with Current Cost Basis of $17.1275
100 Shares with Current Cost Basis of $22.7113
100 Shares with Current Cost Basis of $17.7966


This position currently yields 9.6% (based on current cost basis). As I mentioned in the May expiration post, I am attempting to reduce the size of my position in this stock. Unfortunately, it seems to want to continue ending slightly out of the money on expiration day. In order to increase the likelihood of some of these shares being called away, I will sell at least 1 $20 call. If this position is called, then I accomplish my goal, and if not the cost basis will be reduced another 10%. The other three positions will remain uncovered in order to wait for an increase in the share price to sell additional calls.

Direxion 3x Financial (FAS) - $9.53
100 Shares with Current Cost Basis of $6.60
100 Shares with Current Cost Basis of $9.185

The positions in this ETF continue to yield great returns regardless of the closing price of the stock on expiration. It is my current plan to sell a $9, and 2 $10 July calls.


The positions in the portfolio which did not have June expirations include:

AT&T (T) - No Current Coverage

Bristol-Myers Squibb (BMY) - No Current Coverage

Best Buy (BBY) - No Current Coverage

Continental Airlines (CAL) - No Current Coverage

Alpha Natural Resources (ANR) - July $20 Put

General Electric (GE) - Cash-Secured Puts

Intel (INTC) - July $17 Call

United States Natural Gas (UNG) - July $15 Call.

Initial Transaction - General Electric (GE)

I opened another cash-secured put position in GE today, as a result of its quite sharp decrease in price over the past few days. I believe that it is being dragged down with the financials yet again, unfairly in my opinion. The stock has decreased 19% from 14.53 on May 9 to 11.75 today. I was able to sell an $11 put for a pretty good price which would set my cost basis at about $10.60, a price not seen since the beginning of April. Additionally, the stock yields about 3.8% at this price which is pretty good. This also complements my July $12 CSP which would give me two entry points. The performance metrics are below:

5/27/2009 -- Sold To Open 1 GE June $11 Put @ 0.45


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Put Sale Profit: $45.00


Downward Movement Required (Put Sold When GE@11.75): 6.8%
Possible Max Upside: 4.09%

Annualized Max Upside: 49.77%

Update Transaction - Best Buy (BBY)

After releasing what was overall not that bad earnings, Best Buy has led the retail sector downward. Lucky for me, I put a collar on the stock, so I wasnt hit too bad, and was able to buy back my call as well as sell the put I had purchased for a gain reducing my overall cost basis to $36. I still think Best Buy is a good long term holding, and yields 1.5% at my cost-averaged price which is meager, but still something. The stock was due for somewhat of a correction, but I believe it should hold above $33.46 which was where it was before jumping after its last earnings report in April. I will be selling a July call on this position sometime next week, I am looking at a $38 July call at about $.80. The new purchase metrics are below:

6/12/2009 -- Bought 100 BBY @ 37.54
6/12/2009 -- Sold To Open 1 BBY July $39 Call @ 1.54
6/12/2009 -- Bought To Open 1 BBY June $35 Put @ 0.6
6/18/2009 -- Bought To Close 1 BBY July $39 Call @ 0.50
6/18/2009 -- Sold To Close 1 BBY June $35 Put @ 1.1



The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $3660.00


Downside Coverage: None
Possible Max Upside: Unlimited

Annualized Max Upside: Unlimited

Update Transaction - Alpha Natural Resources (ANR)

Today I decided to close out my call position in ANR a few days before expiration. I am doing this to capitalize on a possible short term jump in the share price in order to resell my call at a higher price and further lower my cost basis. I also bought a July put to hedge my bets just in case the stock does not get called away, and continues to fall. I still believe in the underlying fundamentals of the position, and will sell a new call at $30 in July once the price gets to about $1.50. The new purchase metrics are below:

5/20/2009 -- Bought 100 ANR @ 29.26
5/20/2009 -- Sold To Open 1 ANR June $32.50 Call @ 1.24
5/20/2009 -- Bought To Open 1 ANR June $20 Put @ .3
5/21/2009 -- Bought To Close 1 ANR June $32.50 Call @ .55
5/22/2009 -- Sold To Open 1 ANR June $27.50 Call @ 1.45
5/27/2009 -- Bought To Close 1 ANR $27.50 Call @ 2.18
5/27/2009 -- Sold To Open 1 ANR $30 June Call @ 1.09
6/16/2009 -- Bought To Close 1 ANR $30 June Call @ 0.15
6/16/2009 -- Bought To Open 1 ANR $20 June Put @ 0.5


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2926.00
Current Cost Basis: $29.16


Maximum Downside Risk (due to Put): 23%
Downside Coverage: None
Possible Max Upside: Unlimited

Annualized Max Upside: Unlimited

Closing Transaction - Omnicare (OCR)

Today I decided to close out this position due to a continued decrease in share price, and my belief that the funds from the sale could be used better elsewhere. Continued discussion of the health care plan coming before congress will continue to drag on this stock, as it is heavily dependent on medicare subsidies and other income from government entitlements. My total profit in the end was miniscule, but technically was still above the highest savings account rate that one could get, so overall I would say it wasn't that bad. The final profit/loss info is below:

4/27/2009 -- Bought 100 OCR @ 26.465
4/27/2009 -- Sold To Open 1 OCR May $27.50 Call @ 1.25
5/15/2009 -- Call Option Expired
5/19/2009 -- Sold To Open 1 OCR June $27.5 Call @ 0.95
6/6/2009 -- Bought To Close 1 OCR June $27.5 Call @ 0.15
6/9/2009 -- Sold To Open 1 OCR June $25 Call @ 0.45
6/12/2009 -- Dividend Payment @ 0.0225
6/16/2009 -- Bought To Close 1 OCR June $25 Call @ 0.22
6/16/2009 -- Sold 100 OCR @ 24.07


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2646.50


Total Profit:0.43%

Annualized Total Profit: 3.11%

Update Transaction - Direxion 3x Financial (FAS)

Today I rolled-out one of my positions in FAS, which has traded in a range between about $9 and $10.50 for the past couple weeks. I decided to do this a little early because I am not sure where FAS will be on friday, and I wanted to capture some premium if the the stock lost further value, so I could buy the July call back.

The new profit/loss projections are below:

4/17/2009 -- Bought 100 FAS @ 9.745
4/17/2009 -- Sold To Open 1 FAS May $8 Call @ 2.65

5/7/2009 – Bought To Close 1 FAS May $8 Call @ 3.55

5/7/2009 – Sold To Open 1 FAS May $10 Call @ 1.95

5/15/2009 – May $9 Call Expired

5/18/2009 – Sold To Open 1 FAS June $11 Call @ 0.95
6/15/2009 -- Bought To Close 1 FAS June $11 Call @ 0.25
6/15/2009 -- Sold To Open 1 FAS July $11 Call @ 0.90


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $974.50


Downside Coverage From Current Price: 29.5%
Possible Max Upside: 55.04%

Annualized Max Upside: 218.36%

Update Transaction - Continental Airlines (CAL)

Yet again, Continental Airlines has managed to fall back to the $9 level, most likely as a result of the continued increase in oil prices. This stock has fluctuated quite wildly as of late, moving from 9 to 11 and back to 9 in only two weeks. I decided to buy back the June $11 call that I had sold a week ago, in hope that the stock will rally in the early part of next week and allow me to sell yet another $11 call for this month. The new profit/loss projections are below:

4/14/2009 -- Bought 100 CAL @ 12.225
4/17/2009 -- Sold To Open 1 CAL May $11 Call @ 2.17

5/15/2009 – May $11 Call Expired

5/18/2009 – Sold To Open 1 CAL June $11 Call @ 1.05

5/27/2009 -- Bought To Close 1 CAL June $11 Call @ 0.3
6/2/2009 -- Sold To Open 1 CAL June $11 Call @ 0.65
6/12/2009 -- Bought To Close 1 CAL June $11 Call @ 0.10

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1222.50


Downside Coverage From Current Price (9.09): 3.6%
Possible Max Upside: Unlimited

Annualized Max Upside: Unlimited

Initial Transaction - Best Buy (BBY)

Today I decided to open a position in Best Buy. Best Buy is one of the largest electronics retailers in the US. There are a few reasons for this particular position. I first thought of adding this company to my portfolio a few weeks ago when I needed a new HDMI cable for a new desktop computer. I found myself trying to think of where I could find such a cable, and the only store I could think of that was close by was best buy. It got me thinking, and I realized with circuit city and CompUSA going under over the past two years, it really has left Best Buy as one of the few large electronics retailers left. In addition to this competitive advantage, the combination of new Apple sections at Best Buy stores as well as recent price drops in Apple computers should help in future quarters. Lastly, BBY does offer about a 1.5% yield, not big, but also pretty good in comparison with current rates. The only wrench in this position is that BBY reports earnings next week which could send its stock flying in either direction. As a result I have sold a July call, and purchased a June put to hedge my bets somewhat. If BBY reports lackluster earnings, my max loss is about 4.4%. On the other hand if BBY reports earnings in-line or better than expected, I can make as much as 6.56%. The new purchase metrics are below:

6/12/2009 -- Bought 100 BBY @ 37.54
6/12/2009 -- Sold To Open 1 BBY July $39 Call @ 1.54
6/12/2009 -- Bought To Open 1 BBY June $35 Put @ 0.6



The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $3660.00


Max Downside Risk: 4.4%
Downside Coverage: 2.5%
Possible Max Upside: 6.56%

Annualized Max Upside: 66.48%

Dividend Payment - Omnicare (OCR)

This is simply an update to the position due to the passage of an ex-div date. The purchase info is below.

4/27/2009 -- Bought 100 OCR @ 26.465
4/27/2009 -- Sold To Open 1 OCR May $27.50 Call @ 1.25
5/15/2009 -- Call Option Expired
5/19/2009 -- Sold To Open 1 OCR June $27.5 Call @ 0.95
6/6/2009 -- Bought To Close 1 OCR June $27.5 Call @ 0.15
6/9/2009 -- Sold To Open 1 OCR June $25 Call @ 0.45
6/12/2009 -- Dividend Payment @ 0.0225


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2646.50

If stock is called at expiration:

Downside Coverage (based on current share price): 5.25%
Possible Max Upside: 5.23%

Annualized Max Upside: 35.32%

Update Transaction - Mack-Cali Realty (CLI)

After another (becoming somewhat normal) drop in the price of CLI, I decided to buy back my $25 call for one of my positions (out of 4). This is partially due to my continued belief in the strength of this particular REIT, as well as the fact that it will be paying a dividend in the beginning of July that I would like to get. However, I would like to reduce my overall position in CLI as it is a large portion of my total portfolio so I am keeping my other positions covered with 2 $22.50 June calls, and 1 $25 June call. The new profit/loss projections are below:

Various -- Bought 100 CLI @ 22.90
2/23/2009 -- Sold To Open 1 CLI July $25 Call @ 0.4592

3/6/2009 – Bought To Close 1 CLI July $25 Call @ 0.1408

4/1/2009 – CLI Dividend @ .45

4/9/2009 – Sold To Open 1 CLI July $25 Call @ 2.1426

4/24/2009 -- Bought To Close 1 CLI July $25 Call @ 4.9474

4/24/2009 -- Sold To Open 1 CLI June $30 Call @ 1.9325

5/7/2009 -- Bought To Close 1 CLI June $30 Call @ 0.60

5/7/2009 – Sold To Open 1 CLI June $25 Call @ 1.5926

6/11/2009 – Bought To Close 1 CLI June $25 Call @ 0.25

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2290.00


Downside Coverage From Current Price (23.30): 2.5%
Possible Max Upside: Unlimited

Annualized Max Upside: Unlimited

Covered Call Investing Strategy Outline

I am currently putting together a summary of the various methods used by covered call bloggers that I have come across so far on the web. After reading through the different covered call strategies, I have decided that I will have a post for each section rather than one giant post, as It would be extremely long. Instead, I am going to present my findings in the following structure:

Covered Call / Cash-Secured Put Investing: Stage 1 (Asset Allocation)

• Asset Allocation
  

Covered Call / Cash-Secured Put Investing: Stage 2 (Selection Strategy)

• Stock Selection
• Call Selection (Which Includes Strike Price, and Expiration month)
• Put Selection (Which Includes Strike Price, and Expiration month)

Covered Call / Cash-Secured Put Investing: Stage 3 (Holding Strategy)

• Roll-Up/Roll-Down
• Roll-Forward/Roll-Backward
• Exiting Before Expiration

These are the three topics that I plan to cover in my review of different covered call strategies. Please let me know if anyone has other topics they feel would be relevant to include. Lastly, asset allocation is an area that isnt really discussed very much in the covered call strategies I have found (though the covered calls advisor discusses it at length). If anyone has any insight they would like to share please comment on this post or email me at coveredcallsinvestor at gmail.com.

Initial Transaction (2)- United States Natural Gas (UNG)

Today I decided to open another position in UNG, an etf that "tracks" the price of natural gas. I decided that I wanted a longer position in the ETF than the June Covered call I currently have in my portfolio. See my previous post for purchase rationalization. The performance metrics are below:

6/10/2009 -- Bought 100 UNG @ 14.50
6/10/2009 -- Sold To Open 1 UNG July $15 Call @ 0.97

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


Downside Coverage: 6.69%
Possible Max Upside: 10.5%

Annualized Max Upside: 103.53%

Initial Transaction - Intel (INTC)

Today I opened a position in Intel (INTC) the largest supplier of processor chips for the computer industry among other things. The company is currently rated as a hold by the majority of analysts, though it has 4/5 stars from S&P. One of the important things to keep in mind about analyst ratings is that what often propels a stock upward is analyst upgrades; if a stock is rated as a buy by all analysts covering it, there isn't anywhere for them to go but down. This is why it is important to not only look to such ratings for help choosing a stock, but also create your own "analyst report" based on the information that the different reports give you. As is noted in many investing blogs/books/shows you must always do your own "homework," on the stock and not just trust that others are correct. My take on Intel is that it still essentially commands a monopoly for processors for all intents and purposes. Due to the faltering economy, consumers have moved toward cheaper computers, which tend to source chips from AMD. However, as the economy rebounds, it is likely that demand will switch back to more expensive Intel-based computers. Intel also provides chips to Apple computers now, and due to the sharp decrease in Apple laptop prices, any shift of demand to Mac laptops will at the worst keep the money in Intel as opposed to another semiconductor company. Lastly, at the cost averaged price of 15.84 (if Intel is not ITM at expiration) would result in a 3.5% yield which is pretty high for a tech company. Due to all these factors, and the fact that Intel has recently broken out of the $15-16 range, makes this a good buy. The performance metrics are below:

6/10/2009 -- Bought 100 INTC @ 16.28
6/10/2009 -- Sold To Open 1 INTC July $17 Call @ 0.44

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1584.00


Downside Coverage: 2.7%
Possible Max Upside: 7.32%

Annualized Max Upside: 70.34%

Closing Transaction - Chesapeake Energy (CHK)

After an increase in the stock price to around $24 I decided to exit this position and take my gains. There was less than 1% of additional gains left, and as has been said by other covered calls investors before, it is better to get out and leave a little on the table than hold until expiration and see your stock plummet. The profit info is below:

4/14/2009 -- Bought 100 CHK @ 21.095
4/14/2009 -- Sold To Open 1 CHK May $21 Call @ 1.86

5/6/2009 – Bought To Open 1 CHK May $19 Put @ 0.35

5/15/2009 – May $21 Call and $19 Put Expired

5/18/2009 – Sold To Open 1 CHK June $21 Call @ 1.25
6/10/2009 - Bought To Close 1 CHK June $21 Call @ 2.74
6/10/2009 - Sold 100 CHK @23.52

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2109.50

Percentage Profit: 12.71%

Annualized Profit: 81.4%

Initial Transaction - United States Natural Gas (UNG)

Today I decided to open a position in UNG, an etf that "tracks" the price of natural gas. As I have mentioned in my previous posts for Chesapeake Energy, the ratio of natural gas and oil prices is out of whack with the historical average. As a result there needs to be a correction either in oil or natural gas prices. Although I do feel that oil prices are a bit ahead of themselves, natural gas prices are at levels that have not been seen since 2003, and the shift towards "greener" energy should increase demand for natural gas in the short term. As such, I think that this is a good way to play natural gas prices (though there could be a debate about the ability of UNG to effectively track natural gas prices). For the purpose of covered calls positions, this type of ETF can actually work very well because not as much of a gain is needed to make the same profit. For example, for this position, the etf cannot decrease more than 1.4% overall by expiration; however, if I were to only buy the stock it would have to go up by 2.8% to make the same profit. For this reason, the issue of "contango" is not as much of a concern. The performance metrics are below:

6/10/2009 -- Bought 100 UNG @ 14.20
6/10/2009 -- Sold To Open 1 UNG June $14 Call @ 0.63

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1357.00


Downside Coverage: 4.4%
Possible Max Upside: 2.8%

Annualized Max Upside: 102.21%

Continuing Transaction - Omnicare (OCR)

As discussed in my previous post regarding this position, I went ahead and sold a June $25 call on OCR in an effort to close the position. If the position closes out of the money on expiration day I wont be too disappointed as it will have further lowered my basis, and I dont think the stock would fall much further (knock on wood). The purchase info is below.

4/27/2009 -- Bought 100 OCR @ 26.465
4/27/2009 -- Sold To Open 1 OCR May $27.50 Call @ 1.25
5/15/2009 -- Call Option Expired
5/19/2009 -- Sold To Open 1 OCR June $27.5 Call @ 0.95
6/6/2009 -- Bought To Close 1 OCR June $27.5 Call @ 0.15
6/9/2009 -- Sold To Open 1 OCR June $25 Call @ 0.45


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2646.50

If stock is called at expiration:

Downside Coverage (based on current share price): 1.8%
Possible Max Upside: 5.2%

Annualized Max Upside: 35.13%

Closing Transaction - CSX

Today I closed out my position in CSX. I still feel that this stock is a good long term holding, but my profit was essentially maxed out, and I think the market is still due for a pull back, I may try to jump back into the stock around $32. The final purchase metrics are below:

5/27/2009 -- Bought 100 CSX @ 29.715
5/27/2009 -- Sold To Open 1 CSX June $30 Call @ 1.28
5/27/2009 -- Bought To Open 1 CSX June $26 Put @ 0.45
6/9/2009 -- Bought To Close 1 CSX June $30 Call @5.68
6/9/2009 -- Sold 100 CSX @ 35.49

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2971.50

Final Upside: 3.2%

Annualized Max Upside: 89.91%

Closing Transaction - Savient Pharmaceuticals (SVNT)

Today I decided to exit this position as we were getting closer to an important FDA meeting which could either send the stock plummeting by 50% or upwards by 50%. As I had already made a substantial amount on a percentage basis, I decided it was better to be safe than sorry. Knowing my luck, the stock will skyrocket as a result of the FDA meeting, but many investors have lost their hat before for betting the wrong way on such things. The profit info is below:

5/8/2009 -- Bought 100 SVNT @ 5.1299
5/8/2009 -- Sold To Open 1 SVNT June $5 Call @ 1.80

6/9/2009 – Bought To Close 1 SVNT June $5 Call @ 2.74

6/9/2009 – Sold 100 SVNT @ 6.77

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $3.3299

Percentage Profit: 22.53%

Annualized Profit: 256.94%

Continuing Transaction - Omnicare (OCR)

After a large drop in the share price of Omnicare, I chose to buy back the June $27.5 call. I am currently reviewing Omnicare as part of my portfolio, and may sell a $25 June call in order to increase my likelihood of exiting the position. The increasing discussion of a nationalized health care plan is beginning to impact healthcare stocks in my opinion. The purchase info is below.

4/27/2009 -- Bought 100 OCR @ 26.465
4/27/2009 -- Sold To Open 1 OCR May $27.50 Call @ 1.25
5/15/2009 -- Call Option Expired
5/19/2009 -- Sold To Open 1 OCR June $27.5 Call @ 0.95
6/6/2009 -- Bought To Close 1 OCR June $27.5 Call @ 0.15


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2646.50

If stock is called at expiration:

Downside Coverage (based on current share price): 1.6%
Possible Max Upside: N/A

Annualized Max Upside: N/A

Update Transaction - Hewlett Packard (HPQ)

The cash-secured put position in Hewlett-Packard was closed out today after a large increase in the stock above $37. I thought it best to take profits here, and hope for a bit of a pullback to around the $36 level, where I would sell the $35 put again either for June or July. I still believe HP to be a good long term investment. The performance metrics are below:

5/27/2009 -- Sold To Open 1 HPQ June $35 Put @ 1.20
6/6/2009 -- Bought To Close 1 HPQ June $35 Put @ 0.30

Put Sale Profit: $90.00

Closing Transaction - MEMC Electronic Materials (WFR)

Today I decided to close my position in WFR after making essentially all the money that I could in the position. I think that there is likely still a lot of potential for this stock, and I may re-enter if it goes back down to the $14-18 range that I have purchased it in the previous two times. I think it is always important to keep track of stocks which you have held positions in before, because you may want to get back in if the fundamentals change, or the price drops for no reason, as I believed it did when I got back into this stock this month. The profit info is below:

5/18/2009 -- Bought 100 WFR @ 16.65
5/18/2009 -- Sold To Open 1 WFR June $17.5 Call @ 0.91

6/6/2009 -- Bought To Close 1 WFR June $17.5 Call @ 3.05

6/6/2009 -- Sold 100 WFR @ 20.27


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1574.00

Realized Upside: 9.4%

Annualized Max Upside: 180.63%

Covered Call Investing Strategies

After reading multiple blogs regarding covered call investing, I have decided to write a series of posts regarding the various blog-based covered call strategies that are out there, to provide readers with a sort of playbook that they could choose to use.  I am currently collecting strategies from the various blogs on covered calls that I have found, and will be compiling an overall picture to describe over the next few weeks.  Thus far, the blogs which I will be using for this summary (all blog owners have given approval, dont worry :) are:

coveredcallsadvisor.blogspot.com

stockrent.blogspot.com

coveredwriter.blogspot.com

buywrite.wordpress.com

troysmoneytree.wordpress.com

I hope those of you that read my post, also begin to keep track of these other blogs as well, and please let me know if there are any other blogs that you can recommend to me to include in my "study."  Also, please let me know if there are specific topics that you would like to see called out and discussed.

Jake

Closing Transaction - Tivo (TIVO)

Sometimes it is smarter to be lucky, than lucky to be smart.  This was definitely the case with TIVO.  Last night, an appeals court ruled in their favor on a patent infringement case against Echostar, and was awarded over $100 million in damages.   This amount comes to about half of annual revenues for Tivo providing a needed boost in times of decreased demand.  This however is a short term boost, and has no real impact on the company's future profits.  As such, I decided to exit the position and reap over a 300% annualized gain.  The purchase info is below:

4/19/2009 -- Bought 100 TIVO @ 7.48
4/19/2009 -- Sold To Open 1 TIVO June $7.50 Call @ .63
5/28/2009 -- Bought To Close 1 TIVO June $7.50 Call @ .25
5/28/2009 -- Sold To Open 1 TIVO Nov $10 Call @ .35
5/28/2009 -- Bought To Open 1 TIVO June $5 Put @ .2

6/3/2009 -- Bought To Close 1 TIVO Nov $10 CAll @ 1.85

6/3/2009 -- Sold 100 TIVO @ 9.70


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $748.00

Realized Upside: 12.95%

Annualized Max Upside: 315.11%

Update Transaction - AT&T (T)

Unfortunately, AT&T continues to lag the overall market.  As such I have decided that I would like to exit the position if it all possible, but not leave any money on the table either.  In order to maximize profits, I bought back my October call, and sold a June $25 call simply for the purpose of exiting the position.  If AT&T is under $25 at June expiration, then I have managed to further lower my basis, and if it is above, then I can establish a new position in something else.  Changing to a very close strike should however greatly increase the probability of the call being exercised.  The other 100 shares in AT&T will remain uncovered.  The new metrics for the 100 shares which are now covered is below:

Transaction History:
2/21/2009 -- Additional Stock Purchased -- Bought T @ 23
2/27/2009 -- Sold To Open 1 T April $20 Call @ 3.95
3/10/2009 -- Bought To Close 1 T April $20 Call @ 2.93
3/10/2009 -- Sold to Open 1 T April $25 Call @ .34
3/13/2009 -- Bought To Close 1 T April $25 Call @ .84
3/13/2009 -- Sold To Open 1 T April $26 Call @ .39
4/7/2009 -- AT&T Dividend @ .41
4/17/2009 -- Covered Call Expire
4/20/2009 -- Sold To Open 1 T May $27 @ .43
5/15/2009 -- Covered Call Expire
5/20/2009 -- Sold To Open 1 T Oct $27 @ .65

6/1/2009 -- Bought To Close 1 T Oct $27 @ 0.79

6/1/2009 -- Sold To Open 1 T June $25 @ 0.4

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $4,812.50


Downside Coverage (based on current share price): 9%
Possible Max Upside: 14.05% 

Annualized Max Upside: 43.46%

Update Transaction - General Electric (GE)

One of the CSP positions in the CCIP was closed today after only being held for two days. Although it was a relatively miniscule amount on an absolute basis, I'm trying to start slow in terms of CSP's.  The market's jump today made it worthwhile to close out the position, and establish a new one for next month. If the GE price drops to around 13.15 I may sell another $12 July CSP.  The performance metrics are below:

5/27/2009 -- Sold To Open 1 GE June $12 Put @ 0.32

6/1/2009 -- Bought To Close 1 GE June $12 Put @ 0.11

6/1/2009 -- Sold To Open 1 GE July $12 Put @ 0.4

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Put Sale Profit: $61.00


Downward Movement Required (Put Sold When GE@13.70): 12.4%
Possible Max Upside: 5.08%

Annualized Max Upside: 39.48%