Established Covered Calls Position in iShares China Large-Cap ETF

A two-week Covered Calls position was established in iShares China Large-Cap ETF (ticker FXI) with a February 18th, 2022 options expiration date.   At 1:25pm this afternoon, my buy/write net debit order at $34.67 per share was executed. Six hundred shares of iShares China Large-Cap ETF were purchased at $36.69 and six March 4th, 2022 Call options were sold at the $35.00 strike price at $2.02 per share. This is intended as a replacement of the existing 600 shares FXI Covered Calls position expiring at market close today at the $36.00 strike price. The Implied Volatility of these Calls was 31.6 when this transaction was executed.

The Delta was 76.7 for this position which approximates the probability of 76.7% that the Call options will be in-the-money at the options expiration date. Given the current daily volatility in the market and the Slightly Bearish trend so far this year, a more conservative than usual strike price was selected with substantial 4.6% downside protection to the strike price for a relatively short (two-week) Covered Calls position. Given the current volatility in the market, I have decided to take a somewhat more conservative stance with greater downside protection in my new positions. Consequently, I am increasing the Delta on new positions to a range of 75 to 85 (from and average of 65 to 75 previously). As a result, I've also lowered my minimum annualized-return-on-investment threshold from 20.0% to 15.0%. However, as detailed below, the potential annualized-return-on-investment if assigned at expiration for this position exceeds the prior minimum at +22.7% .    

The iShares China Large-Cap ETF provides some geographic diversification to the Covered Calls Advisor Portfolio.  It holds 57 companies with the top 3 holdings (Meituan, Tencent, and Alibaba) representing about 25% of the total assets of $4.0 billion in this ETF.  Importantly to the Covered Calls Advisor, the FXI investment manager (BlackRock) is now managing all of FXI's assets on the Hong Kong Stock Exchange and not on the American OTC and NYSE Exchanges, thus avoiding some of the recent governance concerns and controls of the central governments of both China and the U.S. that has contributed substantially to the 25% decline in FXI during the past year.  But with this decline, FXI now seems undervalued relative to the S&P 500 ETF (SPY) since: (1) FXI's  Price-to-Cash Flow ratio is only 11.6 compared with SPY's 15.1; and (2) FXI's Price-to-Sales ratio is 1.5 compared with SPY's 2.9.     

As detailed below, a potential return-on-investment result is +0.9% absolute return (equivalent to +22.7% annualized return for the next 15 days) if the stock price is in-the-money (i.e. above the $35.00 strike price) and therefore assigned on the March 4th options expiration date.

 
iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 
The Buy/Write transaction was as follows:
2/18/2022 Bought 600 shares of iShares China Large-Cap ETF shares @ $36.69 per share 
2/18/2022 Sold 6 FXI March 4th, 2022 $35.00 Call options @ $2.02 per share

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
Stock Purchase Cost: $20,806.02
= ($36.69 - $2.02) * 600 shares + $4.02 commission

Net Profit:
(a) Options Income: +$1,207.98
= ($2.02 * 600 shares) - $4.02 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration): -$1,014.00
+($35.00 - $36.69) * 600 shares

Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration): +$193.98
= (+$1,207.98 options income +$0.00 dividend income -$1,014.00 capital appreciation)

Absolute Return-on-Investment: +0.9%
= +$193.98/$20,806.02
Annualized Return-on-Investment: +22.7%
= (+$193.98/$20,806.02) * (365/15 days)