Monday, March 29, 2010

China Unicom (CHU) -- Closed

Expiration Friday for March 2010 occurred on March 19th. In a recent post on this Covered Calls Advisor's blog, it was noted that of the nine covered calls positions held until expiration for March 2010: (1) Three were in-the-money at expiration and were therefore exercised and the stocks were called away; and (2) Six positions ended out-of-the-money. One of the covered calls that was out-of-the-money at Mar2010 expiration was China Unicom (CHU). Today, it was decided to sell the 500 shares of China Unicom owned in the Covered Calls Advisor's Portfolio.

The two primary reasons for liquidating the China Unicom (CHU) holding were: (1) The performance of CHU since its purchase in the CCAP last October has been poor. Although this advisor detects no fundamental breakdown in the fundamentals of the company, it was decided that market exposure to China is better achieved via the FXI ETF rather than from selecting individual stocks in a country for which the financial information available to U.S. investors is less than is needed to make fully-informed decisions; and (2) With the current stock price at a relatively high 9% below the nearest out-of-the-money strike price, the available bid/ask call options premium for the Apr2010 expiration is at $.05/$.10, which is well below this advisor's minimum threshold of $.20.

1. China Unicom (CHU) -- Closed
The transactions history for this completed position 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 these Jan2010 options were sold.
02/26/2010 Sell-to-Open (STO) 5 CHU Mar2010 $12.50s @ $.25
Note: Price of CHU was $12.10 when these Mar2010 options were sold.
03/20/2010 Mar2010 Options Expired
03/29/2010 Sold 500 CHU @ $11.46

The performance results (including commissions) for the CHU transactions were as follows:
Stock Purchase Cost: $6,873.95
= ($13.73*500+$8.95 commission)

Net Profit:
(a) Options Income: +$455.20
= 500*($.20+$.15+$.40+$.25) - 4*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock sold at $11.46): -$1,143.95
= ($11.46-$13.73)*500 - $8.95 commissions

Total Net Profit (Stock sold at $11.46): -$688.75
= (+$455.20 +$0.00 -$1,143.95)

Absolute Return (Stock sold at $11.46): -10.0%
= -$688.75/$6,873.95
Annualized Return: -23.1%
= (-$688.75/$6,873.95)*(365/158 days)