A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) as follows:
Established Gushan Environmental ADR (GU) Covered Calls for Dec08. Gushan is the leading biofuel products producer in China. This is an admittedly speculative, but potentially very profitable, investment. Gushan has a relatively small (currently slightly below $300 million) market cap, but both its valuation and growth prospects are very attractive. From a value perspective, the company trades at a P/E on current year expected earnings of less than 5, has cash of more than 50% of market cap, low debt, and expected production growth of approximately 50% over the next year. In addition, while listening to the latest quarterly earnings conference call, I was impressed by the apparent capabilities, clarity, and vision of Gushan's senior management team.
The overwhelming majority of positions in the Covered Calls Advisor Portfolio (CCAP) are invested in well-established, high quality companies. But the CCAP investing guidelines allow for one speculative position (not exceeding 5% of total assets) at any given time -- Gushan is it!
11/05/08 Bought 2000 GU @ $3.44
11/05/08 Sold 20 GU Dec08 $5.00 Calls @ $.36
Annualized Return If Stock Price Unchanged (ARIU): +84.1%
Annualized Return If Exercised (ARIE): +452.7%
Downside Breakeven Protection: 10.5%