Thursday, December 24, 2009

Continuation Transactions -- Fuqi International Inc.(FUQI) and iShares MSCI China ETF(FXI)

Last 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. Earlier this week, four of the total of seven out-of-the-money equities (Amgen, Noble Corp, China Unicom, and iShares MSCI South Korea ETF) were retained and Jan2010 covered calls positions were established. Today, it was decided to also retain two additional Dec09 out-of-the-money equities (Fuqi International Inc. and iShares MSCI China ETF) and Jan2010 covered calls were established. Detailed explanations of the covered calls positions established today for FUQI and FXI are as follows:

1. Fuqi International Inc.(FUQI) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in Fuqi International Inc.(FUQI) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 200 shares of Fuqi International Inc.(FUQI) and to establish a Jan2010 covered calls position as follows:

12/24/09 Sell-to-Open (STO) 2 FUQI Jan2010 $20.00s @ $.70

The transactions history to date and the profit potential for the continuation covered calls position in CHU is as follows:
10/16/09 Bought 200 FUQI @ $25.45
10/16/09 Sold 2 FUQI Nov09 $26.00 Calls @ $2.00
11/21/09 Nov09 Options Expired
12/03/09 Sell-to-Open (STO) 2 FUQI Dec09 $22.50s @ $.35
Note: The price of FUQI was $20.84 today when this transaction was made.
12/19/09 Dec09 Options Expired
12/24/09 Sell-to-Open (STO) 2 FUQI Jan2010 $20.00s @ $.70
Note: Price of FUQI was $19.32 when the Jan2010 options were sold.

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: +$578.65
= (200*($2.00+$.35+$.70) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $19.32):
-$1,234.95 = ($19.32-$25.45)*200 - $8.95 commissions
(c) Capital Appreciation (If exercised at $20.00): -$1,098.95
= ($20.00-$25.45)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $19.32): -$656.30
= (+$578.65 +$0.00 -$1,234.95)
Total Net Profit(If stock exercised at $22.50): -$520.30
= (+$578.65 +$0.00 -$1,098.95)

Absolute Return if Stock Price Unchanged at $19.32: -12.9%
= -$656.30/$5,098.95
Annualized Return If Unchanged (ARIU): -51.1%
= (-$656.30/$5,098.95)*(365/92 days)

Absolute Return if Stock Exercised at $20.00: -10.2%
= -$520.30/$5,098.95
Annualized Return If Exercised (ARIE): -40.5%
= (-$520.30/$5,098.95)*(365/92 days)

2. iShares MSCI China ETF(FXI) -- Continuation
The Covered Calls Advisor Portfolio(CCAP) position in iShares MSCI China ETF(FXI) was out-of-the-money at Dec09 expiration. Today it was decided to retain the 1,000 shares of iShares MSCI China ETF(FXI) and to establish a Jan2010 covered calls position as follows:

12/24/09 Sell-to-Open (STO) 10 FXI Jan2010 $4363.00s @ $.63

The transactions history to date and the profit potential for the continuation covered calls position in CHU is as follows:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44
11/27/09 Bought 400 FXI @ $42.54
11/27/09 Sold 4 FXI Dec09 $44.00 Calls @ $1.13
12/19/09 Dec09 Options Expired
12/24/09 Sell-to-Open (STO) 10 FXI Jan2010 $43.00s @ $.63
Note: Price of FXI was $42.22 when the Jan2010 options were sold.

Some possible overall performance results(including commissions) for the FXI transactions would be as follows:
Stock Purchase Cost: $44,357.90
= ($45.54*600+$42.54*400+2*$8.95 commission)

Net Profit:
(a) Options Income: +$1,914.65
= (600*($1.44+$.63)+400*($1.13+$.63) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $42.22):
-$2,128.95 = [($42.22-$45.54)*600-($42.22-$42.54)*400] - $8.95 commissions
(c) Capital Appreciation (If exercised at $43.00): -$1,348.95
= [($43.00-$45.54)*600-($43.00-$42.54)*400] - $8.95 commissions

Total Net Profit(If stock price unchanged at $42.22): -$214.30
= (+$1,914.65 +$0.00 -$2,128.95)
Total Net Profit(If stock exercised at $43.00): +$565.70
= (+$1,914.65 +$0.00 -$1,348.95)

Absolute Return if Stock Price Unchanged at $42.22: -0.5%
= -$214.30/$44,357.90
Annualized Return If Unchanged (ARIU): -3.2%
= (-$656.30/$5,098.95)*(365/55 days)

Absolute Return if Stock Exercised at $43.00: +1.3%
= +$565.70/$44,357.90
Annualized Return If Exercised (ARIE): +8.5%
= (+$565.70/$44,357.90)*(365/55 days)

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