Wednesday, March 30, 2011

China Mobile Ltd (CHL) -- Continuation Transaction

March 18, 2011 was options expiration Friday for March 2011. The short options in the China Mobile Ltd (CHL) Mar2011 covered calls position with a $47.50 strike price expired worthless since CHL closed on options expiration Friday at $45.02, below the $47.50 strike price. Today the Covered Calls Advisor decided to retain the 200 shares in CHL and to establish a covered calls position by selling 2 May2011 $47.50 calls. The detailed transactions history for this position as well as possible results for this investment are as follows:

1. China Mobile Ltd (CHL) -- Continuation Transaction
The transactions history to date for China Mobile Ltd (CHL) is as follows:
02/23/2011 Bought 200 CHL @ $46.479
02/23/2011 Sold 2 CHL Mar2011 $47.50 Calls @ $.60
03/19/2011 Mar2011 Options Expired
03/30/2011 Sold 2 CHL May2011 $47.50 Calls @ $.55
Note: price of CHL was $46.22 when these options were sold.
05/10/2011 Ex-dividend payment of approximately $.9128 per share expected.
05/21/2011 May2011 Options Expiration will occur.

Two possible overall performance results(including commissions) for the China Mobile Ltd ADR (CHL) transactions would be as follows:

Stock Purchase Cost: $9,304.75
= ($46.479*200+$8.95 commission)

Net Profit:
(a) Options Income: +$209.10
= ($.60 + $.55)*200 shares - 2*$10.45 commissions
(b) Dividend Income: +$182.56 = $.9128 * 200 shares
(c) Capital Appreciation (If stock price unchanged at $46.22): -$60.75
= ($46.22-$46.479)*200 - $8.95 commissions
(c) Capital Appreciation (If CHL above $47.50 at May2011 expiration): +$195.25
+($47.50-$46.479)*200 - $8.95 commissions

Total Net Profit(If stock price unchanged at $46.22): +$330.91
= (+$209.10 +$182.56 -$60.75)
Total Net Profit(If stock price above $47.50 at May2011 options expiration): +$586.91= (+$209.10 +$182.56 +$195.25)

Absolute Return if Unchanged at $46.22: +3.6%
= +$330.91/$9,304.75
Annualized Return If Unchanged (ARIU): +14.9%
= (+$330.91/$9,304.75)*(365/87 days)

Absolute Return (If stock assigned at $47.50 upon May2011 options expiration): +6.3%
= +$586.91/$9,304.75
Annualized Return if stock assigned at expiration (ARIA): +26.5%
= (+$586.91/$9,304.75)*(365/87 days)

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