Today, 10/25/10, I bought to close (BTC) 4 SNIC Dec10 10 Covered Calls at a net cost of $303.04 and sold 2 SNIC May11 12.50 Covered Call at a net cost of $64.60 in 2 IRA accounts.  My adjusted basis for these SNIC shares is now 23.84 for 100 of the shares and 27.68 for the other 100 shares, taking into account the original purchase price of my DIVX shares, the adjusted cumulative options premiums and the cash received in the exchange.  I think my calculations were correct but since this is a new thing for me I could be wrong.  Assuming my basis calculation is correct, this transaction represents simple/annualized returns of about 4.76%/8.38% and 4.13%/7.27% respectively.

I made similar trades in another account last week.  For simplicity, the following is essentially what I wrote at that time.

SNIC acquired DIVX in June in a deal that valued DIVX at about $9.83 per share.  Sonic was to pay $3.75 per share in cash and .514 SNIC shares for each share of DIVX.  I had outstanding Covered Calls on DIVX for the Dec10 10 which became SNIC Dec10 10 with a deliverable of 51 shares of SNIC and $379.32 in cash for each contract.

I decided to perform these trades because, even though there was a net cost for the two transactions, I think I am ahead because of the $379.32 in cash I would have had to pay out if the old contracts were called away.

Thomson Reuters rated SNIC as Outperform on 10/19/10; SmartConsensus Report rates SNIC as a Buy while Market Edge Second Opinion has a Long Rating with a price opinion of 8.79.  Market Edge seems to be consistently low in its price targets.  Looking at Yahoo I see that the analysts they report have is a mean price target of 14.17 with a range of 13 to 16.

SNIC, like DIVX, does not pay a dividend.  I think I will be quite happy for it to be called away one day, maybe even at a loss so I can redeploy the cash in more lucrative stocks.  However, if I can continue to realize returns on the premiums as I did this time I will probably continue to hold the stock for the purpose of selling the Covered Calls.

On Monday, 10/18/10, I bought to close (BTC) 2 SNIC Dec10 10 Covered Calls at a net cost of $161.52.  On Wednesday, 10/20/10, I sold 1 SNIC May11 12.50 Covered Call for a net deposit of $84.22 in an IRA account.  My adjusted basis for these SNIC shares is 33.41, taking into account the original purchase price of my DIVX shares, the adjusted cumulative options premiums and the cash received in the exchange.  I think my calculations were correct but since this is a new thing for me I could be wrong.  Assuming my basis calculation is correct, this transaction represents a simple return of about 2.58% and an annualized return of about 4.42%.

SNIC acquired DIVX in June in a deal that valued DIVX at about $9.83 per share.  Sonic will pay $3.75 per share in cash and .514 SNIC shares for each share of DIVX.  I had outstanding Covered Calls on DIVX for the Dec10 10 which became SNIC Dec10 10 with a deliverable of 51 shares of SNIC and $379.32 in cash for each contract.

I decided to perform these trades because, even though there was a net cost for the two transactions, I think I am ahead because of the $379.32 in cash I would have had to pay out if the old contracts were called away.

With that all said I’m still not sure how to evaluate my existing DIVX contracts.  I still have 3 sets of them in various accounts.  E*Trade tells me that, although the strike price is $10, that the effective strike price is $12.17.  I’m not sure but I think that means that as along as the SNIC share price is below 12.17 that my contracts are effectively out of the money.  I have yet to decide what to do about the remaining DIVX contracts but am leaning toward closing them out as I did with these contracts.

Thomson Reuters rated SNIC as Outperform on 10/19/10; SmartConsensus Report rates SNIC as a Buy while Market Edge Second Opinion has a Long Rating with a price opinion of 8.79.  Market Edge seems to be consistently low in its price targets.  Looking at Yahoo I see there is a mean price target of 14.17 with a range of 13 to 16.

SNIC, like DIVX, does not pay a dividend.  I think I will be quite happy for it to be called away one day, maybe even at a loss.

While I was on vacation my GTC (Good till Cancel) orders to sell DIVX Covered Calls were executed.  On 7/13/10 and again on 7/15/10, I STO 3 DIVX Dec10 10 Covered Calls for a net deposit of $105.34 in 3 IRA accounts.  My basis for these DIVX shares now varies from 15.80 to 20.45.

Thomson Reuters rated DIVX as Outperform on 7/22/10 while S&P has no current rating and not 12 month price target.

On June 2, 2010, Sonic Solutions (SNIC) agreed to acquire DIVX in a deal that valued DIVX at about $9.83 per share.  Sonic will pay $3.75 per share in cash and .514 SNIC shares for each share of DIVX.  There are now several pending lawsuits and investigations by law firms into the deal on behalf of DIVX stockholders.  No idea where all of that will go.

My last Calls on DIVX were for the Dec08 10’s.  I have been sitting on DIVX for some time waiting for the opportunity to once again sell Covered Calls at the $10 strike or higher.  Apparently I was not watching very closely in early June or I would have sold Covered Calls then and received a larger premium when DIVX was up around $9.

DIVX does not pay a dividend and has been a real laggard in my accounts.  I will be quite happy for it to be called away one day, maybe even at a loss.