Friday, March 13, 2009

Establish China Mobile LTD ADR Covered Calls

A new covered call position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of China Mobile LTD ADR (CHL) covered calls.

China Mobile is the one of the world's largest companies with a current market capitaliziation of $178.3 billion. It is by far the world's largest mobile telecommunications service provider with 464 million subscribers in China. To put this statistic in perspective, this is approximately three times the total number of wireless subscribers of both Verizon Wireless and AT&T combined. Yet at it's current price, CHL is very attractively valued. On the Covered Calls Advisor's 'Buy Alerts' worksheet, CHL rated a perfect 9-out-of-9 which is a very unusual occurrence. The current CHL options implied volatility is very high and part of this is attributable to the fact that the next earnings release is coming up on March 19th. Despite the uncertainty associated with this earnings release, for this advisor, the high potential covered calls investment returns (see below) are more than sufficient to justify the investment risk in CHL.

A summary of the transactions is as follows:

Established China Mobile LTD ADR Covered Calls for Mar09:
03/13/09 Bought 200 CHL @ $44.15
03/13/09 Sold 2 CHL Mar09 $45.00 Calls @ $1.00

Absolute Return if Unchanged: +2.3%
Annualized Return If Unchanged (ARIU): +103.3%
Absolute Return if Exercised: +4.2%
Annualized Return If Exercised (ARIE): +191.2%
Downside Breakeven Price Point: $43.15
Downside Breakeven Protection: 2.3%