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Wednesday, January 20, 2010

Establish Market Vectors Russia ETF Covered Calls

Last Friday, the Covered Calls Advisor Portfolio (CCAP) Jan2010 covered calls position in the Market Vectors Russia ETF (RSX) was in-the-money and was called away for a very nice profit. Goldman Sachs views being long Russia equities as one of their top 10 trading ideas for 2010, citing a 25% return potential. So today, this advisor decided to establish a new RSX slightly out-of-the-money covered calls position with a Feb2010 expiration as follows:

Established Market Vectors Russia ETF (RSX) Covered Calls for Feb2010:
01/20/2010 Bought 300 RSX @ $33.68
01/20/2010 Sold 3 RSX Feb2010 $34.00 Calls @ $1.20

Some possible overall performance results(including commissions) for the RSX transactions would be as follows:
Stock Purchase Cost: $10,112.95
= ($33.68*300+$8.95 commission)

Net Profit:
(a) Options Income: +$348.80
= (300*$1.20 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $33.68):
-$8.95 = ($33.68-$33.68)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $34.00): +$87.05
= ($34.00-$33.68)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $33.68): +$339.85
= (+$348.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $34.00): +$435.85
= (+$348.80 +$0.00 +$87.05)

Absolute Return if Unchanged at $33.68: +3.4%
= +$339.85/$10,112.95
Annualized Return If Unchanged (ARIU) +39.6%
= (+$339.85/$10,112.95)*(365/31 days)

Absolute Return if Exercised at $34.00: +4.3%
= +$435.85/$10,112.95
Annualized Return If Exercised (ARIE) +50.7%
= (+$435.85/$10,112.95)*(365/31 days)

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