Thursday, September 24, 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 capitalization of $201 billion. It is by far the world's largest mobile telecommunications service provider with over 500 million subscribers in China, and it continues to experience significant growth, having added over 45 million new subscribers during the first eight months in 2009. To put their size in perspective, this is approximately three times the total number of wireless subscribers of both Verizon Wireless and AT&T combined.

You might recall that this Advisor had prior covered calls positions in CHL which were assigned at Apr09 and Aug09 expirations. Because CHL continues to rate very highly on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 22.42 is well above this advisor's required threshold of 20.0), it was decided to re-establish a covered calls position in CHL with an Oct09 expiration.

Note: For expanded view, left click on the spreadsheet above.

A summary of the transactions today is as follows:

Established China Mobile LTD ADR Covered Calls for Oct09:
09/24/09 Bought 200 CHL @ $50.25
09/24/09 Sold 2 CHL Oct09 $50.00 Calls @ $1.70

Some potential results from this transaction are:
Absolute Return if Exercised at $50.00: +2.9%
= [$1.70 - ($50.25 - $50.00)]/$50.25
Annualized Return if Exercised(ARIE): +45.8%
= [$1.70 - ($50.25 - $50.00)]/(365/23 days)

Downside Breakeven Price Point: $48.55
= $50.25 - $1.70
Downside Breakeven Protection: 2.9%
This in-the-money position provides up to 0.5% [($50.25-$50.00)/$50.25] downside protection available while still achieving the maximum potential annualized return-on-investment of 45.8% from this covered calls position.