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Thursday, October 14, 2010

Roll Up and Out -- iShares MSCI China ETF Covered Calls

Today, with one day remaining until Oct2010 options expiration (and with the eleven iShares MSCI China ETF (FXI) Oct2010 $43.00 calls well in-the-money), the Covered Calls Advisor decided to roll-up-and-out to the Nov2010 expiration at the $47.00 strike price. The transactions history as well as possible return results are detailed below:

1. iShares MSCI China ETF (FXI) -- Continuation Transaction
With iShares MSCI China ETF (FXI) priced at $45.67, the eleven existing Oct2010 $43.00 calls were bought back for $2.69 (only $.02 of time value remaining in each call option) and then replaced by selling eleven Nov2010 $47.00 strike options at $.85 as follows:
10/14/2010 Buy-to-Close (BTC) 11 FXI Oct2010 $43.00 Call Options @ $2.69
10/14/2010 Sell-to-Open (STO) 11 FXI Nov2010 $47.00 Call Options @ $.85
The price of FXI was $45.67 today when this roll-up-and-out debit spread transaction was made.

The transactions history is as follows:
06/21/2010 Bought 1,100 FXI @ $41.85
06/21/2010 Sold 11 FXI Jul2010 $43.00 Calls @ $.71
7/17/2010 Jul2010 Options Expired
Note: The closing price of FXI was $38.74 on expiration Friday.
07/22/2010 Sold 7 FXI Aug2010 $42.00 Calls @ $.73
07/22/2010 Sold 4 FXI Aug2010 $43.00 Calls @ $.42
Note: The price of FXI was $41.02 today when these options were sold.
08/21/2010 Aug2010 Option Expired
Note: The closing price of FXI was $40.54 on expiration Friday.
09/02/2010 Sold 11 FXI Sep2010 $42.00 Call Options @ $.20
Note: The price of FXI was $40.52 today when these options were sold.
09/17/2010 Sep2010 Options Expired
09/20/2010 Sell-to-Open (STO) 11 FXI Oct2010 $43.00 Call Options @ $.62
Note: The price of FXI was $42.19 today when these options were sold.
10/14/2010 Buy-to-Close (BTC) 11 FXI Oct2010 $43.00 Call Options @ $2.69
10/14/2010 Sell-to-Open (STO) 11 FXI Nov2010 $47.00 Call Options @ $.85

Some possible overall performance results(including commissions) for the iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $46,043.95
= ($41.85*1,100+$8.95 commission)

Net Profit:
(a) Options Income: +$252.25
= (1,100*($.71+$.20+$.62-$2.69+$.85) + 700*$.73 + 400*$.40 - ($17.20*3 +$14.20 +$11.95) commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI unchanged at $45.67): +$4,193.05
= ($45.67-$41.85)*1,100 - $8.95 commissions
(c) Capital Appreciation (If all FXI shares are assigned at $47.00): +$5,656.05 = ($47.00-$41.85)*1,100 - $8.95 commissions

Total Net Profit (If FXI price unchanged at $45.67): +$4,445.30
= (+$252.25 +$0.00 +$4,193.05)
Total Net Profit (If FXI assigned at $47.00): +$5,908.30
= (+$252.25 +$0.00 +$5,656.05)

Absolute Return (If FXI unchanged at $45.67): +9.7%
= +$4,445.30/$46,043.95
Annualized Return If Unchanged (ARIU): +23.2%
= (+$4,445.30/$46,043.95)*(365/152 days)

Absolute Return (If Assigned at $47.00): +12.8%
= +$5,908.30/$46,043.95
Annualized Return If Assigned (ARIA): +30.8%
= (+$5,908.30/$46,043.95)*(365/152 days)

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