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Thursday, April 23, 2009

Establish iShares Russell 2000 Small Cap Index ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares Russell 2000 Small Cap Index ETF (IWM) covered calls.

The iShares Russell 2000 Small Cap Index ETF (ticker symbol IWM) is an index fund that represents the small cap sector of the U.S. equity market. This ETF was selected in order to obtain additional portfolio diversification in the Covered Calls Advisor Portfolio through greater exposure to small cap companies. Historically, small cap stocks have slightly outperformed large cap stocks and this outperformance is especially pronounced in the early stages of a post-recession economic recovery.

Established iShares Russell 2000 Value Index ETF Covered Calls for Feb09:
04/23/09 Bought 400 IWM @ $46.62
04/23/09 Sold 4 IWM May09 $47.00 Calls @ $1.98

Some potential results from this transaction are as follows:

Absolute Return if Unchanged at $46.62: +4.2%
Annualized Return If Unchanged (ARIU): +67.4%

Absolute Return if Exercised: +5.1%
=[$1.98+($47.00-$46.62)]/$46.62
Annualized Return If Exercised (ARIE): +80.3%

Downside Breakeven Price Point: $44.64
Downside Breakeven Protection: 4.2%

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