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SSO the Proshares Ultra S&P500 - Covered Calls Revisited

Submitted by WSN_Staff on Thu, 08/06/2009 - 16:12.
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Investing Ideas (3)

Let’s update how we use online options trading with the ProShares Ultra S&P500 (ETF) (NYSE:SSO) to created a covered call strategy.  As you may recall from previous articles, the cost basis on our 500 shares of SSO is $22.64.  Thanks to timing and strategy since end end of June I am at 7.8% profit that yields a CAGR of 40.1%. 

This is detailed below:

 

Date Description Quantity Symbol Price Total
--- Already Owned 200 Shares of SSO 200 SSO  $        (25.32)  $           (5,064)
6/29/2009 Bought 300 SSO @ 26.26 300 SSO  $        (26.26)  $           (7,878)
6/29/2009 Sold 2 SOJHB @ 0.9 (Aug $28 Call) 200 SOJHB  $            0.90  $                  180
6/29/2009 Sold 3 SOJHX @ 3.2 (Aug $24 Call) 300 SOJHX  $             3.20  $                  960
7/7/2009 Bought 3 SOJHX @ 1.8 (Aug $24 Call) 300 SOJHX  $           (1.80)  $               (540)
7/7/2009 Sold 3 SOJIV @ 3.4 (Sept $22 Call) 300 SOJIV  $             3.40  $              1,020
 $         (11,322)

 

 

We have performed online options trading to sell 5 option contracts that are all currently “in the money” with strike prices of $22 for 300 shares
and $28 for 200 shares.  I think this is fabulous since we have maximized our covered call profit and still maintain downside protection.   The following are the results of as we currently sit today.
Cost Basis  $       22.64
Start Date 6/29/2009
End Date* 9/18/2009
* conservative since calls expire on different dates
Item  Shares  Sale $/share  Total 
SOJHB August $28 Call  200  $              28.00  $    5,600
SOJIV Sept. $22 Call 300  $              22.00  $    6,600
Total Value  $  12,200
Total Cost  $   11,320
Profit $  $         880
Profit % 7.77%
CAGR % 40.1%
We are sitting with 7.8% profit that yields a CAGR of 40.1%, destroying the average market CAGRof 10%.  This is big money!  If you have not learned about online
options tradings and how covered calls can help protect you, you
should.  There are places to learn about online options trading on this
page. 
In reviewing the profit, you might be saying that I am missing out on profit that I would gain if I had just flat out owned the stock outright.   This is true since the stock is currently trading at $30.95/share.  However, if you look back at the historical pricing of the market, you would notice that I would have had to stomach a drop down to $23.81 and hope that my emotions did not overcome me into selling at the low price out of fear. 

 


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SOURCE: http://assetwealthdev.com/blog/sso-options-sp500-08062009

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