Saturday, September 22, 2012

Roll-Outs -- iShares MSCI China ETF and iShares MSCI South Korea ETF

The Covered Calls Advisor decided to retain the existing covered calls positions in iShares MSCI China ETF (ticker symbol FXI) and iShares MSCI South Korea ETF (ticker symbol EWY) by rolling out to the Oct2012 expiration.  The advantage of waiting until today (expiration Friday) to roll these positions was to extract almost all of the extrinsic value from the short options before establishing the position for the next expiration month.

1. iShares MSCI China ETF (FXI) -- Roll Out
The Sep2012 options at the $34.00 strike price were rolled out to the same $34.00 strike price for Oct2012 with the following credit spread transaction:
09/21/2012 Bought-to-Close 10 FXI Sep2012 $34.00 Call Options at $.90
09/21/2012 Sell-to-Open 10 FXI Oct2012 $34.00 Call Options at $1.35
Note: the price of FXI was $34.88 when this transaction was made.

The transaction history so far in this iShares MSCI China ETF (FXI) position is as follows:
07/30/2012 Bought 1,000 FXI shares @ $34.09
07/30/2012 Sold 10 FXI Aug2012 $34.00 Call Options @ $.80
08/17/2012 Bought-to-Close 10 FXI Aug2012 $34.00 Calls at $.42
08/17/2012 Sold-to-Open 10 FXI August 24th, 2012 $34.50 call options at $.31
Note: the price of FXI was $34.41 today when this roll-up-and-out transaction occurred.
08/24/2012 10 FXI Aug 24th $34.50 call options expired.
Note: the price of FXI was $34.01 today when these options expired.
08/28/2012 Sold-to-Open 10 FXI Sep2012 $34.00 Calls @ $.56
Note: the price of FXI was $33.62 today when this transaction was made.
09/21/2012 Bought-to-Close 10 FXI Sep2012 $34.00 Call Options at $.90
09/21/2012 Sell-to-Open 10 FXI Oct2012 $34.00 Call Options at $1.35
Note: the price of FXI was $34.88 when this transaction was made.

A possible overall performance result (including commissions) for this iShares MSCI China ETF (FXI) covered calls position is as follows:
Stock Purchase Cost: $34,098.95 = ($34.09*1,000+$8.95 commission)

Net Profit:
(a) Options Income: +$1,535.25 =($.80-$.42+$.31+$.56-$.90+$1.35)*1,000 shares - 4*$16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI assigned at $34.00 upon expiration): -$98.95
=($34.00-$34.09)*1,000 - $8.95 commissions

Total Net Profit (If FXI assigned at $34.00 at Oct2012 expiration): +$1,535.25
= (+$1,634.20 +$0.00 -$98.95)

Absolute Return (If FXI assigned at $34.00 at Oct2012 options expiration): +4.5%
= +$1,535.25/$34,098.95
Annualized Return (If stock assigned): +20.0%
= (+$1,535.25/$34,098.95)*(365/82 days)

2. iShares MSCI South Korea ETF (EWY) -- Roll Up and Out
The Sep2012 options at the $57.00 strike price were rolled-up-and-out to the $59.00 strike price for Oct2012 with the following credit spread transaction:
09/21/2012 Bought-to-Close 5 EWY Sep2012 $57.00 Call Options at $2.90
09/21/2012 Sell-to-Open 5 EWY Oct2012 $59.00 Call Options at $1.87
Note: the price of EWY was $59.85 when this transaction was made.

The transaction history so far in this iShares MSCI South Korea ETF (EWY) position is as follows:
07/30/2012 Bought 500 EWY shares @ $54.51 08/01/2012
Sold 5 EWY Aug2012 $56.00 Call Options @ $1.40
Note: the price of EWY was $56.40 today when the options were sold.
08/17/2012 Bought-to-Close 5 EWY Aug2012 $56.00 Calls at $1.68
Note: this was done with the price of EWY at $57.67
08/17/2012 Sold-to-Open 5 EWY Sep2012 $57.00 call options at $2.03
09/21/2012 Bought-to-Close 5 EWY Sep2012 $57.00 Call Options at $2.90
09/21/2012 Sell-to-Open 5 EWY Oct2012 $59.00 Call Options at $1.87
Note: the price of EWY was $59.85 when this transaction was made.

A possible overall performance result (including commissions) is as follows:
Stock Purchase Cost: $27,263.95
= ($54.51*500+$8.95 commission)

Net Profit:
(a) Options Income: +$321.90
= ($1.40-$1.68+$2.03-$2.90+$1.87)*500 shares - 3*$12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWY assigned at $59.00): +$2,236.05
= ($59.00-$54.51)*500 - $8.95 commissions

Total Net Profit(If EWY assigned at $59.00): +$2,557.95
= (+$321.90 +$0.00 +$2,236.05)

Absolute Return if Assigned at $59.00: +9.4%
= +$2,557.95/$27,263.95
Annualized Return If Assigned (ARIA): +41.8%
= (+$2,557.95/$27,263.95)*(365/82 days)

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