Fund DNet Asset = $95,463.
Cash On-hand = $105,678.
Saturday, March 14, 2009
Fund D - Selling LEAP PUT for C
Interesting Setup and Transaction on LEAP PUT for C
2-Mar-09
STO long term LEAP options
STO 200 contracts C-Jan-2011-$2.50-PUT for $1.58. Collected $31,600.
In about 2 years time,
if C stays above $2.50 we keep 100% profit of $31,600.
If C stays above $0.92 we will profit.
If C stays at $0.92 we break-even.
If C stays below $0.92 we will lose money.
Worst case if C bankrupted (which US government will avoid at all cost), we lose $0.92 each i.e. a total of $18,400.
Not a bad deal as we plan to win max $31,600 but loss max $18,400.
13-Mar-09
Surprise thing happened today. Someone exercised their PUT option and we got assigned 125 contracts i.e. 12,500 C shares. At that time C share price is at $1.80.
Which means we paid $2.50 to buy these 12,500 shares but current market value is only $1.80. So by having to buy the shares we lose $0.70 each. But we have already collected $1.58 upfront when we sold the options on 2-Mar-09. So for each share our immediate net gain is $0.88 (i.e. $1.58 minus $0.70).
If we sell C immediate at $1.80 at market price now the gain will be a total of $11,000 ( i.e. $0.88 x 12,500). That is pretty good profit.
It is our initial belief that C will cross or stay at $2.50 in about 2 years time. If someday we can sell C share at $2.50, then we will be able to realize the max profit target of per unit of $1.58 which is a total of $19,750 (i.e. $1.58 x 12,500).
With this belief, instead of selling off the 12,500 C shares at $1.80 and closed out, we decided to Sell covered CALL for current month with Strike of $2.50. And will continue to do so on a monthly basis until it get exercised at $2.50 (resulting in max profit of $19,750). This covered CALL provides additional monthly income along the way. The Risk is if C drops a lot in price, we will incur paper-loss along the way, which is ok because these Shares (not Options) have no expiry date. Our time horizon is 2 years. Or we can close out earlier along the way and lock-in the profit if we want to.
STO current month option 125 contracts covered CALL on C.
STO 125 contracts of C-Mar-2009-$2.50-CALL at $0.067 and collected $837.
STO another 25 LEAP contracts to round up the balance 75 LEAP contract to a total of 100 contracts. Average cost for this 100 contracts is now at $1.6098.
STO 25 contracts C-Jan-2011-$2.50-PUT (total collected for the 100 contracts is $16,098).
2-Mar-09
STO long term LEAP options
STO 200 contracts C-Jan-2011-$2.50-PUT for $1.58. Collected $31,600.
In about 2 years time,
if C stays above $2.50 we keep 100% profit of $31,600.
If C stays above $0.92 we will profit.
If C stays at $0.92 we break-even.
If C stays below $0.92 we will lose money.
Worst case if C bankrupted (which US government will avoid at all cost), we lose $0.92 each i.e. a total of $18,400.
Not a bad deal as we plan to win max $31,600 but loss max $18,400.
13-Mar-09
Surprise thing happened today. Someone exercised their PUT option and we got assigned 125 contracts i.e. 12,500 C shares. At that time C share price is at $1.80.
Which means we paid $2.50 to buy these 12,500 shares but current market value is only $1.80. So by having to buy the shares we lose $0.70 each. But we have already collected $1.58 upfront when we sold the options on 2-Mar-09. So for each share our immediate net gain is $0.88 (i.e. $1.58 minus $0.70).If we sell C immediate at $1.80 at market price now the gain will be a total of $11,000 ( i.e. $0.88 x 12,500). That is pretty good profit.
It is our initial belief that C will cross or stay at $2.50 in about 2 years time. If someday we can sell C share at $2.50, then we will be able to realize the max profit target of per unit of $1.58 which is a total of $19,750 (i.e. $1.58 x 12,500).
With this belief, instead of selling off the 12,500 C shares at $1.80 and closed out, we decided to Sell covered CALL for current month with Strike of $2.50. And will continue to do so on a monthly basis until it get exercised at $2.50 (resulting in max profit of $19,750). This covered CALL provides additional monthly income along the way. The Risk is if C drops a lot in price, we will incur paper-loss along the way, which is ok because these Shares (not Options) have no expiry date. Our time horizon is 2 years. Or we can close out earlier along the way and lock-in the profit if we want to.
STO current month option 125 contracts covered CALL on C.
STO 125 contracts of C-Mar-2009-$2.50-CALL at $0.067 and collected $837.
STO another 25 LEAP contracts to round up the balance 75 LEAP contract to a total of 100 contracts. Average cost for this 100 contracts is now at $1.6098.
STO 25 contracts C-Jan-2011-$2.50-PUT (total collected for the 100 contracts is $16,098).
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