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Monday, December 22, 2008

Establish iShares MSCI South Korea ETF Covered Calls

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

South Korea ranks #1 in this advisor's '2009 Country Value Rankings'.
To achieve this ranking, S. Korea demonstrates positive financial attributes in virtually all of the categories measured by these rankings. Some examples specifically for S. Korea are:
- Real GDP growth (estimated at 4.3%) should exceed inflation (est. at 3.0%) in 2009
- Relatively low current P/E Ratio of 8.6
- Relatively low P/Book Ratio of 1.23
- Government expected to operate with a Budget Surplus in 2009
- Current Accounts Balance (Exports minus Imports) expected to be positive in 2009

There are relatively few South Korean companies trading on American exchanges. The best way to invest in the strong potential for the South Korean stock market is through ETFs; and the one that is best proxy for the overall country's economy and stock market is the iShares MSCI South Korea ETF (ticker symbol EWY). Fortunately for us covered calls investors, this ETF has reasonably good liquidity in both the ETF itself but also in the call options. It is also well diversified across all sectors of the South Korean economy, with substantial percentages of the total portfolio in the consumer, industrial, information technology, and financial sectors.

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Jan09:
12/22/08 Bought 600 EWY @ $28.50
12/22/08 Sold 6 EWY Jan09 $30.00 Calls @ $1.10

Annualized Return If Unchanged (ARIU): +54.1%
Annualized Return If Exercised (ARIE): +128.1%
Downside Breakeven Protection: 3.9%

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