Wednesday, November 18, 2009

Establish iShares MSCI China ETF Covered Calls


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


Established iShares MSCI China ETF (FXI) Covered Calls for Dec09:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44

Some possible overall performance results(including commissions) for this FXI investment would be as follows:
Stock Purchase Cost: $27,332.95
= ($45.54*600+$8.95 commission)

Net Profit:
(a) Options Income: +$850.55
= (600*$1.44 - $13.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $45.54): -$8.95
= ($45.54-$45.54)*600 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $46.00): +$267.05
= ($46.00-$45.54)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.54): +$841.60
= (+$850.55 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $46.00): +$1,117.60
= (+$850.55 +$0.00 +$267.05)

Absolute Return if Stock Price Unchanged at $45.54: +3.1%
= +$841.60/$27,332.95
Annualized Return If Unchanged (ARIU): +36.3%
= (+$841.60/$27,332.95)*(365/31 days)

Absolute Return if Stock Exercised at $46.00: +4.1%
= +$1,117.60/$27,332.95
Annualized Return If Exercised (ARIE): +48.1%
= (+$1,117.60/$27,332.95)*(365/31 days)

The downside breakeven price for this out-of-the-money position is $44.10 ($45.54-$1.44), and as such provides a downside profit protection of up to 3.1% below the purchase price.

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