Monday, December 22, 2008

Establish iShares MSCI China ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI China ETF (FXI).

China ranks #2 in this advisor's '2009 Country Value Rankings'. Only South Korea (in which the CCAP has also established a current covered calls position) ranks higher than China in the Covered Calls Advisor's country valuation ratings.
Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 7.0% in 2009 should substantially exceed the estimated inflation rate of 4.1%
- Relatively low current P/E Ratio of 11.0
- Relatively low P/Book Ratio of 1.65
- Government expected to operate with a Budget Surplus in 2009
- Current Accounts Balance (Exports minus Imports) expected to be positive in 2009

Rather than try to select individual companies in China, the FXI ETF was selected for investment. It consists of market-cap-weighted positions in the 25 largest companies in China, and although it is most heavily weighted in the financial, energy, and telecommunications sectors, it still provides a relatively good way to diversify across the Chinese economy and its overall stock market performance.

Established iShares MSCI China ETF (FXI) Covered Calls for Jan09:
12/22/08 Bought 700 FXI @ $29.23
12/22/08 Sold 7 FXI Jan09 $32.00 Calls @ $.95

Annualized Return If Unchanged (ARIU): +45.6%
Annualized Return If Exercised (ARIE): +178.7%
Downside Breakeven Protection: 3.3%

1 comment:

  1. I made a similar trade recently but I sold naked puts instead. I like your blog and the way you trade. In fact, I've added you to my blog list. See If you like what you see perhaps you can link back but only if you want. Hopefully we can discuss trades in future. Good luck