Friday, October 16, 2009

Establish Fuqi International Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Fuqi International Inc. (FUQI) covered calls as follows:

Established Fuqi International Inc. (FUQI) Covered Calls for Nov09:
10/16/09 Bought 200 FUQI @ $25.45
10/16/09 Sold 2 FUQI Nov09 $26.00 Calls @ $2.00

Fuqi International, Inc. is a leading designer of high quality precious metal jewelry in China; developing, promoting, and selling a broad range of products in the large and rapidly expanding Chinese luxury goods market. The company offers basic gold jewelry, as well as a range of products, including rings, bracelets, necklaces, earrings, and pendants made from precious metals, such as platinum, gold, palladium, and karat gold. It also manufactures jewelry with diamonds and other precious gemststone inlays, as well as gold coins and gold bars. FUQI serves its customers through approximately 30 provincial distributors and 700 direct sales agents in China and is still expanding into new markets and regions.

The 'Buy Alerts' spreadsheet below shows that Fuqi possesses both strong value and profitability characteristics. In addition, they possess a successful top management team that has been largely intact since the company's founding in 2001. This advisor believes that Fuqi is well positioned to continue to benefit directly from both its geographical growth opportunities within China, as well as China's ongoing wealth creation and accompanying consumer spending growth.

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

Some possible overall performance results(including commissions) for the FUQI transactions would be as follows:
Stock Purchase Cost: $5,098.95
= ($25.45*200+$8.95 commission)

Net Profit:
(a) Options Income: +$389.55
= (200*$2.00 - $10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $25.45):
-$8.95 = ($25.45-$25.45)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $26.00): +$101.05
= ($26.00-$25.45)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $25.45): +$380.60
= (+$389.55 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $26.00): +$490.60
= (+$389.55 +$0.00 +$101.05)

Absolute Return if Stock Price Unchanged at $25.45: +7.5%
= +$380.60/$5,098.95
Annualized Return If Unchanged (ARIU): +75.7%
= (+$380.60/$5,098.95)*(365/36 days)

Absolute Return if Stock Exercised at $26.00: +9.6%
= +$490.60/$5,098.95
Annualized Return If Exercised (ARIE): +97.6%
= (+$490.60/$5,098.95)*(365/36 days)