Wednesday, April 20, 2011

Establish iShares MSCI China ETF and UnitedHealth Group Inc. Covered Calls

Monday, with the Dow down over 200 points in reaction to the S&P warning on the U.S. debt rating, the Covered Calls Advisor purchased four equity positions with the idea of legging them into covered calls positions over the next couple of days when the market bounced back from its initial overreaction to the S&P news. The four equities purchased were 1,000 iShares MSCI China ETF (FXI), 500 iShares MSCI Emerging Markets ETF (EEM), 600 iShares MSCI South Korea ETF (EWY), and 300 shares of UnitedHealth Group Inc.(UNH). Yesterday, covered calls positions were established with the EEM and EWY holdings.

Today, with equity prices continuing to rebound from Monday's sell-off, covered calls positions were established against the other two shares held in FXI and UNH. The transactions as well as some potential results are detailed below.

1. iShares MSCI China ETF (FXI)
The transactions were as follows:
04/18/2011 Bought 1,000 FXI @ $44.80
04/20/2011 Sold 10 FXI May2011 $47.00 Calls @ $.49
Note: the price of FXI was $45.88 when the calls were sold.

Two possible overall performance results(including commissions) for these iShares MSCI China ETF (FXI) transactions would be as follows:
Stock Purchase Cost: $44,808.95
= ($44.80*1,000+$16.45 commission)

Net Profit:
(a) Options Income: +$477.30
= (1,000*$.49 - $12.70 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $44.80 at expiration): -$8.95
= ($44.80-$44.80)*1,000 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $47.00): +$2,191.05
= ($47.00-$44.80)*1,000 - $8.95 commissions

Total Net Profit (If stock price unchanged at expiration): +$468.35
= (+$477.30 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $47.00): +$2,668.35
= (+$477.30 +$0.00 +$2,191.05)

1. Absolute Return (If stock unchanged at $44.80 at expiration): +1.0%
= +$468.35/$44,808.95
Annualized Return (If stock unchanged at expiration): +11.6%
= (+$468.35/$44,808.95)*(365/33 days)

2. Absolute Return (If stock assigned at $47.00 at expiration): +6.0%
= +$2,668.35/$44,808.95
Annualized Return If Assigned (ARIA): +65.9%
= (+$2,668.35/$44,808.95)*(365/33 days)


2. UnitedHealth Group Inc.(UNH)
The transactions were as follows:
04/18/2011 Bought 300 UNH @ $43.97
04/20/2011 Sell-to-Open(STO) 3 UNH May2011 $45.00 CallS @ $1.03
Note: the price of UNH was $44.60 when the call options were sold.

Two possible overall performance results(including commissions) for these UnitedHealth Group Inc.(UNH) transactions would be as follows:
Stock Purchase Cost: $13,199.95
= ($43.97*300+$8.95 commission)

Net Profit:
(a) Options Income: +$297.80
= (300*$1.03 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock unchanged at $43.97 at expiration): -$8.95
= ($43.97-$43.97)*300 - $8.95 commissions
(c) Capital Appreciation (If stock assigned at $45.00): +$300.05
= ($45.00-$43.97)*300 - $8.95 commissions

Total Net Profit (If stock price unchanged at $43.97 at expiration): +$288.85
= (+$297.80 +$0.00 -$8.95)
Total Net Profit (If stock assigned at $45.00): +$597.85
= (+$297.80 +$0.00 +$300.05)

1. Absolute Return (If stock unchanged at $43.97 at expiration): +2.2%
= +$288.85/$13,199.95
Annualized Return (If stock unchanged at expiration): +24.2%
= (+$288.85/$13,199.95)*(365/33 days)

2. Absolute Return (If stock assigned at $45.00 at expiration): +4.5%
= +$597.85/$13,199.95
Annualized Return If Assigned (ARIA): +50.1%
= (+$597.85/$13,199.95)*(365/33 days)

No comments:

Post a Comment