How I made over 50% CAGR for June using Covered Calls

I made over 50% Compound Annual Growth Rate (CAGR) for June by using Covered Calls.  Yes, stock options, can be extremely volatile and dangerous… to buy!  So, why not get on the other side of the fence and sell them?  I recently bought one of the leveraged exchange traded funds (ETFs).  Here is how the transaction(s) went.

On June 1, 2009:
Bought 400 shares SSO at $27.51
Sold 4 contracts $26 June Calls, symbol SOJFZ (this is a “Covered Call”) for $2.12

The SSO,  is the ProShares Ultra S&P500 (ETF)(NYSE:SSO). ProShares Ultra S&P500 (the Fund), formerly Ultra S&P500 ProShares, seeks daily investment results that correspond to twice the daily performance of the S&P 500 Index. The S&P 500 Index is a measure of large-cap United States stock market performance.

You can Google covered calls (view that result) and get lots of information if you don’t know what one is.  My cost per share is 27.51 – 2.12 = $25.39.  On June 19, 2009, SSO closed at $26.23, so my shares were sold for $26.  My profit was:

26/25.39 – 1 = 2.4%

That doesn’t sound like a lot, but I was only in the trade for 18 days.  Annualize that and you get 61.8% CAGR!  That doesn’t account for commissions (which ate up $42 between buys, sells and call assignment) and left me with a CAGR of 49%.  Still, not too shabby.  Stay tuned for my next trade. 

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