Tuesday, December 22, 2009

Continuation Transactions -- China Unicom(CHU) and iShares MSCI South Korea Fund (EWY)

This past Friday was expiration Friday for December 2009 options. In a Covered Calls Advisor's blog recent post, it was noted that of the thirteen covered calls positions for December 2009: (1) Six were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Seven positions ended out-of-the-money. Yesterday, two of the total of seven out-of-the-money equities (Amgen and Noble Corp) were retained and Jan2010 covered calls positions were established. Today, it was decided to also retain two additional Dec09 out-of-the-money equities (China Unicom Ltd. and iShares MSCI South Korea ETF) and Jan2010 covered calls were established. Detailed explanations of the covered calls positions established today for CHU and EWY are as follows:

1. China Unicom Ltd.(CHU) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in China Unicom Ltd.(CHU) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 500 shares of China Unicom Ltd.(CHU) and to establish a Jan2010 covered calls position as follows:

12/22/09 Sell-to-Open (STO) 5 CHU Jan2010 $12.50s @ $.40

The transactions history to date and the profit potential for the continuation covered calls position in CHU is as follows:
10/22/09 Bought 500 CHU @ $13.73
10/22/09 Sold 5 CHU Nov09 $15.00 Calls @ $.20
11/21/09 Nov09 Options Expired
11/23/09 Sold 5 CHU Dec09 $15.00 Calls @ $.15
12/19/09 Dec09 Options Expired
12/21/09 Sell-to-Open (STO) 5 CHU Jan2010 $12.50s @ $.40
Note: Price of CHU was $12.52 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the CHU transactions would be as follows:
Stock Purchase Cost: $6,873.95
= ($13.73*500+$8.95 commission)

Net Profit:
(a) Options Income: +$336.90
= (500*($.20+$.15+$.40) - 3*$12.70 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock exercised at $12.50): -$623.95
= ($12.50-$13.73)*500 - $8.95 commissions

Total Net Profit(If stock exercised at $12.50): -$287.05
= (+$336.90 +$0.00 -$623.95)

Absolute Return if Stock Exercised at $12.50: -4.2%
= (-$287.05/$6,873.95)
Annualized Return If Exercised (ARIE): -17.7%
= (-$287.05/$6,873.95)*(365/86 days)


2. iShares MSCI South Korea ETF(EWY) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in iShares MSCI South Korea ETF(EWY) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 400 shares of iShares MSCI South Korea ETF(EWY) and to establish a Jan2010 covered calls position as follows:

12/22/09 Sell-to-Open (STO) 4 EWY Jan2010 $47.00s @ $1.00

The transactions history to date and the profit potential for the continuation covered calls position in EWY is as follows:
11/17/09 Bought 400 EWY @ $45.59
11/17/09 Sold 4 EWY Dec09 $46.00 Calls @ $1.70
12/19/09 Dec09 Options Expired
12/22/09 Sell-to-Open (STO) 4 EWY Jan2010 $47.00s @ $1.00
Note: The price of EWY was $46.35 today when the options were sold.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $18,244.95
= ($45.59*400+$8.95 commission)

Net Profit:
(a) Options Income: +$1,056.10
= (400*($1.70+$1.00) - 2*$11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $46.35):
-$8.95 = ($46.35-$46.35)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $47.00): +$555.05
= ($47.00-$45.59)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.35): +$1,047.15
= (+$1,056.10 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $47.00): +$1,611.15
= (+$1,056.10 +$0.00 +$555.05)

Absolute Return if Unchanged at $46.35: +5.7%
= +$1,047.15/$18,244.95
Annualized Return If Unchanged (ARIU) +34.9%
= (+$1,047.15/$18,244.95)*(365/60 days)

Absolute Return if Exercised at $47.00: +8.8%
= +$1,611.15/$18,244.95
Annualized Return If Exercised (ARIE) +53.7%
= (+$1,611.15/$18,244.95)*(365/60 days)

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