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Wednesday, March 21, 2012

Establish iShares MSCI Emerging Markets ETF Covered Calls

Today, a new covered calls position was established in iShares MSCI Emerging Markets ETF (Symbol EEM) with an Apr2012 expiration and at the $44.00 strike price. The transactions and some possible outcomes are as follows:

03/21/2012 Bought 500 EEM shares @ $43.31
03/21/2012 Sold 5 EEM Apr2012 $44.00 Call Options @ $.78

Two possible overall performance results(including commissions) for the iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $21,663.95
= ($43.31*500+$8.95 commission)

Net Profit:
(a) Options Income: +$377.30
= ($.78*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If equity price unchanged at $43.31): -$8.95
+($43.31-$43.31)*500 - $8.95 commissions
(c) Capital Appreciation (If EEM assigned at $44.00): +$336.05
+($44.00-$43.31)*500 - $8.95 commissions

Total Net Profit(If price unchanged at $43.31 at Apr2012 expiration): +$368.35
= (+$377.30 +$0.00 -$8.95)
Total Net Profit(If equity assigned at $44.00 at Apr2012 expiration): +$713.35
= (+$377.30 +$0.00 +$336.05)

1. Absolute Return (If EEM price unchanged at Apr2012 expiration): +1.7%
= +$368.35/$21,663.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +19.4%
= (+$368.35/$21,663.95)*(365/32 days)

2. Absolute Return (If EEM equity assigned at $44.00 at Apr2012 expiration): +3.3%
= +$713.35/$21,663.95
Annualized Return (If stock assigned): +37.6%
= (+$713.35/$21,663.95)*(365/32 days)

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