Wednesday, October 31, 2007

Roll Up -- iShares MSCI South Korea Index ETF

The Covered Calls Advisor Portfolio (CCAP) covered call positions in iShares MSCI South Korea Index ETF(EWY) were rolled up today (10/31/07) from the Nov 70S to the Nov 75s. The transactions were as follows:

10/31/07 Buy-to-Close (BTC) 8 EWY Nov 70s @ $5.20
10/31/07 Sell-to-Open (STO) 8 EWY Nov 75s @ $1.75
Net Debit on Roll Up $3.45

The ‘net debit to strike price difference ratio’ was 69% [($5.20-$1.75)/($75-$70)]*100, which achieved the desired threshold of rolling up when the ratio is <75%.

A summary of the EWY transactions so far is as follows:
Initial EWY Post: EWY Link
10/23/07 Initial ETF Position -- Bought 800 EWY @ 68.40
10/23/07 Initial Calls Postion -- Sold 8 EWY Nov07 70 Calls @ 1.90
Today:
10/31/07 Roll Up Transaction -- BTC 8 EWY Nov 70s @ $5.20
10/31/07 Roll Up Transaction -- STO 8 EWY Nov 75s @ $1.75
Note: EWY ETF was trading at $74.45 today when the roll up transaction was executed.

The results-to-date through the completed Nov 70 covered calls and the status on the newly established Nov 75 covered calls position (including commissions) are each summarized below:

(a) Completed Covered Calls Transactions:
Original Stock Investment 10/23/07 – Purchased 800 shares EWY @ $68.40
= $68.40*800 + $9.95 commission = ($54,729.95)
Change in ETF Value ($74.45-$68.40)*800 = $4,840.00
Change in Options Value = Options Write Income $1,504.05($1.90*800-$15.95 commission) minus Options Buyback Cost $4,175.95($5.20*800+$15.95 commission)=
-$2,671.90($1,504.05-$4,175.95)

Net Change (+$4,840.00-$2,671.90) = $2,168.10

ANNUALIZED RETURN ON INVESTMENT:
(2,168.10/54,729.95)*(365/8 days) = 180.7%

(b) New Covered Call Position Established Today:
10/31/07 Retained 800 EWY at $74.45 = ($59,560)
10/31/07 Sold 8 Nov07 75 Calls @ $1.75 = $1,384.05 ($1.75*800-$15.95 commission)

Annualized Return If Unchanged (ARIU) 50.5%
Annualized Return If Exercised (ARIE) 66.3%
Downside Breakeven Protection 2.4% =Avg. of .14%/day for 17 days until expiration which exceeds the minimum threshold average of .06%/day required by the covered calls advisor.

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