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Monday, December 29, 2014

Established New Short 100% Cash-Secured Puts Position in iShares China Large-Cap ETF

The Covered Calls Advisor is late in posting this position, which was established a week ago on the Monday after Dec2014 options expiration.  A new position was established in iShares China Large-Cap ETF (Symbol FXI) by selling 4 Jan2015 $40.00 Put options.
The details of the associated transaction and a potential return-on-investment result is:

1. iShares China Large-Cap ETF (FXI) -- New Position
The transaction was as follows:
12/22/2014 Sold 4 iShares China Large-Cap ETF Jan2015 $40.00 Puts @ $.75
Note: The price of FXI was approximately $41.06 when this transaction was executed.

The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the four Put options sold.

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $16,000.00
= $40.00*400
Note:  the price of FXI was $41.06 when these Put options were sold.

Net Profit:
(a) Options Income: +$288.05
= ($.75*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $40.00 strike price at Jan2015 expiration): +$0.00
= ($40.00-$40.00)*400 shares

Total Net Profit (If FXI is above $40.00 strike price at Jan2015 options expiration):+$288.05  = (+$288.05 +$0.00 +$0.00)

Absolute Return (If FXI is above $40.00 strike price at Jan2015 options expiration): +1.8% = +$288.05/$16,000.00
Annualized Return (If FXI above $40.00 at expiration): +25.3%
= (+$288.05/$16,000.00)*(365/26 days)

The downside 'breakeven price' at expiration is at $39.25 ($40.00 - $.75), which is 4.4% below the current market price of $41.06.
The 'crossover price' at expiration is $41.81 ($41.06 + $.75).  This is the price above which it would have been more profitable to simply buy-and-hold FXI until Jan 16th (the Jan2015 options expiration date) rather than investing in these short Put options.