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Friday, March 13, 2009

iShares MSCI China ETF -- Continuation Transaction

The following transaction was made to establish a covered calls position against the 700 shares owned in iShares MSCI China ETF (FXI):
03/13/09 Sell-to-Open (STO) 7 FXI Apr09 $30s @ $.60

The transactions history to date is as follows:
12/22/08 Initial Stock Purchase Transaction -- Bought 700 FXI @ $29.23
12/22/08 Initial Calls Sold Transaction -- Sold 7 FXI Jan09 $32.00 Calls @ $.95
01/17/09 Jan09 Options Expired
02/06/09 Continuation Transaction -- Sell-to-Open (STO) 7 FXI Feb09 $30s @ $.50
Note: The price of FXI was $28.33 today when the calls were sold.
02/21/09 Feb09 Options Expired
03/13/09 Sell-to-Open (STO) 7 FXI Apr09 $30s @ $.60
Note: The price of FXI was $26.40 today when the calls were sold.

Despite the price decline since this China ETF was originally purchased last December, the Covered Calls Advisor continues to be bullish on China. Consequently, the Apr09 $30 strike price was chosen which is substantially (13.6%) out-of-the-money. This allows for a substantial price increase in FXI before the call options would be exercised.

The overall performance results(including commissions) for the FXI transactions are as follows:
Stock Purchase Cost: $20,469.95
($29.23*700+$8.95 commission)

Net Profit:
(a) Options Income: +$1,392.40 (700*($.95+$.50+$.60) - 3*$14.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged): -$1,989.95
= ($26.40-$29.23)*700 - $8.95 commissions
(d) Capital Appreciation (If exercised): +$530.05
= ($30.00-$29.23)*700 - $8.95 commissions

Total Net Profit(If stock price unchanged at $26.40): -$597.55
= (+$1,392.40 +$0.00 -$1,989.95)
Total Net Profit(If stock price exercised at $30.00): +$1,922.45
= (+$1,392.40 +$0.00 +$530.05)

Absolute Return if Unchanged: -2.9%
Annualized Return If Unchanged (ARIU): -9.1%
(-$597.55/$20,469.95)*(365/117 days)

Absolute Return if Exercised: +9.4%
Annualized Return If Exercised (ARIE) +29.3%
(+$1,922.45/$20,469.95)*(365/117 days)

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