Search This Blog

Wednesday, December 15, 2010

Roll Up and Out -- iShares MSCI South Korea ETF (EWY) Covered Calls

Today, with the three iShares MSCI South Korea ETF (EWY) Dec2010 $55.00 calls well in-the-money, the Covered Calls Advisor decided to roll-up-and-out to the Jan2011 expiration at the $59.00 strike price. The three Dec2010 $55.00 calls were bought back for $3.05 (only $.03 of time value remaining in each call option) and replaced by selling three out-of-the-money Jan2011 $59.00 strike options at $1.43 as follows:
12/15/2010 Buy-to-Close (BTC) 3 EWY Dec2010 $55.00 Call Options @ $3.05
12/15/2010 Sell-to-Open (STO) 3 EWY Jan2011 $59.00 Call Options @ $1.43
The price of EWY was $58.02 today when this debit-spread transaction was made.

The overall transactions history as well as two possible return-on-investment results are detailed below:

1. iShares MSCI South Korea ETF (EWY) -- Continuation Transaction
The transactions history to date for iShares MSCI South Korea ETF (EWY) is as follows:
11/26/2010 Bought 300 EWY @ $53.67
11/26/2010 Sold 3 EWY Dec2010 $55.00 Calls @ $1.18
12/15/2010 Buy-to-Close (BTC) 3 EWY Dec2010 $55.00 Call Options @ $3.05
12/15/2010 Sell-to-Open (STO) 3 EWY Jan2011 $59.00 Call Options @ $1.43
12/21/2010 Income Distribution $50.73 = $.16910 * 300 shares

Two possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $16,109.95
= ($53.67*300+$8.95 commission)

Net Profit:
(a) Options Income: -$154.40
= [300*($1.18-$3.05+$1.43) - 2*$11.20 commissions]
(b) Distribution Income: +$50.73 = $.16910 * 300 shares
(c) Capital Appreciation (If EWY unchanged at $58.02): +$1,296.05
= ($58.02-$53.67)*300 - $8.95 commissions
(c) Capital Appreciation (If EWY assigned at $59.00): +$1,590.05
= ($59.00-$53.67)*300 - $8.95 commissions

Total Net Profit(If EWY price unchanged at $58.02): +$1,192.38
= (-$154.40 +$50.73 +$1,296.05)
Total Net Profit(If EWY assigned at $59.00): +$1,486.38
= (-$154.40 +$50.73 +$1,590.05)

Absolute Return (If EWY unchanged at $58.02): +7.4%
= +$1,192.38/$16,109.95
Annualized Return If Unchanged (ARIU): +47.4%
= (+$1,192.38/$16,109.95)*(365/57 days)

Absolute Return if Exercised at $59.00: +9.2%
= +$1,486.38/$16,109.95
Annualized Return If Exercised (ARIE): +59.1%
= (+$1,486.38/$16,109.95)*(365/57 days)

No comments:

Post a Comment