Friday, October 16, 2015

Roll Out -- iShares China Large-Cap ETF Covered Calls

Today, with less than an hour before market close, the covered calls position in iShares China Large-Cap ETF (ticker FXI) was rolled out from the Oct2015 $38.00 strike price to another $38.00 strike for the Nov2015 options expiration.  This is a continuation of the initial FXI position established in August.  A Call options roll out limit order was established at a net credit of $.78, and the transaction was executed within a few minutes as follows:
Buy-to-Close 3 FXI Oct2015 Call options @ $1.70
Sell-to-Open 3 FXI Nov2015 Call options  @ $2.48
Net Credit Received                                     $ .78

As detailed below, this iShares China Large-Cap ETF investment will yield a +4.3% absolute return in 95 days (which is equivalent to a +16.6% annualized return-on-investment) if FXI closes above the $38.00 strike price on the Nov2015 options expiration date. 

The transaction history and a potential return on investment result are as follows:

iShares China Large-Cap ETF (FXI) --Continuation
The transactions are as follows:
08/17/2015 Sold 3 iShares China Large-Cap ETF Sep2015 $38.50 Puts @ $.77
Note 1: The price of FXI was $39.75 when this transaction was executed.
Note 2: The Covered Calls Advisor does not use margin, so the detailed information on this position and a potential result shown below reflect the fact that this position was established using 100% cash securitization for the three Put options sold.
09/18/2015 3 FXI Sep2015 Put options exercised and 300 shares of FXI purchased at $38.50 strike price
Note: the price of FXI was $36.32 upon Sep2015 options expiration
09/21/2015 Sold 3 FXI $38.00 Oct2015 Call options @ $.73
Note: the price of FXI was $36.91 when this transaction was made
Roll Out on 10/16/2015 Bought-to-Close 3 FXI $38.00 Oct2015 Call options @ $1.70 
and simultaneously       Sold-to-Open 3 FXI $38.00 Nov2015 Call options @ $2.48
Note: the price of FXI was $39.69 when this roll out transaction was executed, so there was only $.01 [$1.70 - ($39.69 - $38.00)] of time value remaining in the Oct2015 Call options when this roll out transaction occurred.

A possible overall performance result (including commissions) for these transactions would be as follows:
100% Cash-Secured Cost Basis: $11,550.00
= $38.50*300

Net Profit:
(a) Options Income: +$650.40
= ($.77+$.73-$1.70+$2.48) *300 shares - 3*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI remains above $38.00 strike price at Nov2015 expiration): -$150.00
= ($38.00-$38.50)*300 shares

Total Net Profit (If FXI is above $38.00 strike price upon the Nov2015 options expiration): +$500.40
= (+$650.40 options income +$0.00 dividend income -$150.00 capital appreciation)

Absolute Return (If FXI remains above $38.00 strike price at Nov2015 options expiration): +4.3%
= +$500.40/$11,550.00
Annualized Return: +16.6%
= (+$500.40/$11,550.00)*(365/95 days)