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Friday, February 18, 2011

Roll Up and Out -- iShares MSCI Brazil Fund ETF (EWZ)

Today is Feb2011 options expiration Friday. With iShares MSCI Brazil Fund ETF (EWZ) trading at $74.60, the two EWZ Feb2011 $73.00 calls were well in-the-money. The Covered Calls Advisor decided to retain the iShares MSCI Brazil Fund ETF position and roll-up-and-out to the Mar2011 expiration at the $74.00 strike price. The two Feb2011 $73.00 calls were bought back for $1.61 (only $.01 of time value remaining in each call option) and replaced by selling two in-the-money Mar2011 $74.00 strike options at $2.32 as follows:
02/18/2011 Buy-to-Close (BTC) 2 PBR Feb2011 $73.00 Call Options @ $1.61
02/18/2011 Sell-to-Open (STO) 2 PBR Mar2011 $74.00 Call Options @ $2.32

The overall transactions history as well as a possible return-on-investment result is detailed below:

1. iShares MSCI Brazil Fund ETF (EWZ) -- Continuation Transaction
The transactions history to date for iShares MSCI Brazil Fund ETF (EWZ) is as follows:
01/28/2011 Bought 200 EWZ @ $72.119
01/28/2011 Sold 2 EWZ Feb2011 $73.00 Calls @ $1.45
02/18/2011 Buy-to-Close (BTC) 2 PBR Feb2011 $73.00 Call Options @ $1.61
02/18/2011 Sell-to-Open (STO) 2 PBR Mar2011 $74.00 Call Options @ $2.32

Some possible overall performance results(including commissions) for the EWZ transactions would be as follows:
Stock Purchase Cost: $14,432.75
= ($72.119*200+$8.95 commission)

Net Profit:
(a) Options Income: +$411.10
= (200*($1.45-$1.61+$2.32) - 2*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If exercised at $74.00): +$367.25
= ($74.00-$72.119)*200 - $8.95 commissions

Total Net Profit(If assigned at $74.00): +$778.35
= (+$411.10 +$0.00 +$367.25)

Absolute Return if Assigned at $74.00: +5.4%
= +$778.35/$14,432.75
Annualized Return If Assigned (ARIA): +39.4%
= (+$446.80/$14,432.75)*(365/50 days)