Tuesday, March 22, 2011

iShares MSCI Brazil ETF (EWZ) -- Continuation Transaction

Last Friday was options expiration Friday for March 2011. The short options in the iShares MSCI Brazil ETF (EWZ) Mar2011 covered calls position with a $74.00 strike price expired worthless since EWZ closed last Friday at $73.30, below the $74.00 strike price. Today the Covered Calls Advisor decided to retain the 200 shares in EWZ and to establish a covered calls position by selling 2 Apr2011 $75.00 calls. The detailed transactions history for this position as well as possible results for this investment are as follows:

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
03/19/2011 Mar2011 Options Expired
03/22/2011 Sold 2 EWZ Apr2011 $75.00 Calls @ $1.44
Note: price of EWZ was $74.38 when these options were sold.

Two 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: +$688.65
= (200*($1.45-$1.61+$2.32+$1.44) - 3*$10.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of EWZ unchanged at $74.38): +$443.25
= ($74.38-$72.119)*200 - $8.95 commissions
(c) Capital Appreciation (If assigned at $75.00): +$567.25
= ($75.00-$72.119)*200 - $8.95 commissions

Total Net Profit(If unchanged at $74.38): +$1,131.90
= (+$688.65 +$0.00 +$443.25)
Total Net Profit(If assigned at $75.00): +$1,255.90
= (+$688.65 +$0.00 +$567.25)

1. Absolute Return if Unchanged at $74.38: +7.8%
= +$1,131.90/$14,432.75
Annualized Return If Unchanged (ARIU): +36.7%
= (+$1,131.90/$14,432.75)*(365/78 days)

2. Absolute Return if Assigned at $75.00: +8.7%
= +$1,255.90/$14,432.75
Annualized Return If Assigned (ARIA): +40.7%
= (+$1,255.90/$14,432.75)*(365/78 days)

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