Friday, October 16, 2009

Establish iShares MSCI South Korea ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI South Korea ETF (EWY) covered calls as follows:

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Nov09:
10/16/09 Bought 400 EWY @ $45.815
10/16/09 Sold 4 EWY Nov09 $46.00 Calls @ $1.90

EWY is the best investment vehicle available to capture widespread exposure to the diversified South Korean economy and stock market through a single equity. South Korea is a good value-oriented investment since some traditional value metrics such as P/E and P/Book are significantly less than those of the U.S., while the expectation for GDP growth with low inflation for 2010 also favors South Korea.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $18,334.95
= ($45.815*400+$8.95 commission)

Net Profit:
(a) Options Income: +$748.05
= (400*$1.90 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $45.815):
-$8.95 = ($45.815-$45.815)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $46.00): +$65.05
= ($46.00-$45.815)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.815): +$739.10
= (+$748.05 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $46.00): +$813.10
= (+$748.05 +$0.00 +$65.05)

Absolute Return if Unchanged at $45.815: +4.0%
= +$739.10/$18,334.95
Annualized Return If Unchanged (ARIU) +40.9%
= (+$739.10/$18,334.95)*(365/36 days)

Absolute Return if Exercised at $46.00: +4.4%
= +$813.10/$18,334.95
Annualized Return If Exercised (ARIE) +45.0%
= (+$813.10/$18,334.95)*(365/36 days)

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