This afternoon, the Covered Calls position in iShares China Large-Cap ETF (ticker FXI) was continued by rolling out today's six FXI June 17th, 2022 $32.00 Calls two additional weeks to the July 1st, 2022 $32.00 strike price. A credit spread transaction was executed by buying-to-close 6 June 17th $32.00 Calls at $.34 per share and simultaneously selling 6 July 1st, 2022 $32.00 Calls at $1.16 per share when FXI's price was $32.275 per share.
This is the fifth rollout for this FXI Covered Calls position. FXI has declined substantially from its original $36.69 purchase price, yet if the price remains above the $32.00 strike price and is therefore assigned at its July 1st options expiration, this Covered Calls will have a small negative return-on-investment result despite having declined 12.8% from its $36.69 purchase price to its $32.00 selling price. This demonstrates the benefit of selling in-the-money Call options to lower the downside breakeven price in bearish markets.
This iShares China Large-Cap ETF Covered Calls position is being continued based on the belief that their stock market is in a bottoming process with increasing equity prices likely in its near-term future. So, I believe continuing this FXI Covered Calls position remains viable despite an economic slowdown in China that has included strict Covid-19 lockdowns. I remain bullish on China stocks now for three primary reasons: (1) their stock valuations are very low versus their historic levels; (2) related to monetary policy, China is doing QE whereas the U.S. and Europe have now begun a QT policy mode--making China's stock markets attractive relatively speaking; and (3) China's recent Covid trends have improved significantly and they have begun easing their rigid lockdown policies.
Note: I prefer FXI to some other China-focused ETFs since FXI options are very liquid and iShares purchases all China holdings therein (such as Alibaba, Tencent, JD, etc.) only on the Hong Kong Exchange rather than on U.S. Exchanges. This policy avoids most of the current regulatory and political risks inherent in the U.S. listings of these Chinese companies.
iShares China Large-Cap ETF (FXI) -- Continuation of Covered Calls Position
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.
3/04/2022 6 FXI Calls expired out-of-the-money so the 600 shares remained in the Covered Calls Advisor Portfolio.
3/22/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI April 1st, 2022 $35.00 Call options @ $.42 per share. The FXI share price was $33.415 when these Calls were sold.
4/01/2022 6 FXI Calls expired out-of-the-money so the 600 shares remained in the Covered Calls Advisor Portfolio.
04/04/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI April 14th, 2022 $35.00 Call options @ $.38 per share.
4/14/2022 6 FXI Calls expired out-of-the-money so the 600 shares remained in the Covered Calls Advisor Portfolio.
05/20/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI June 3rd, 2022 $31.00 Call options @ $.77 per share. The FXI share price was $30.69 when these Calls were sold and the Implied Volatility of these Calls was 36.4.
6/03/2022 Continued the Covered Calls position in iShares Large-Cap China ETF by Rolling-Up-and-Out the current June 3rd FXI Covered Calls position by simultaneously buying-to-close the six June 3rd $31.00 Calls at $.91 per share and selling-to-open six June 17th, 2022 $32.00 Calls at $.77 per share. Note: the FXI price was $31.89 when this transaction was executed.
6/9/2022 Semi-annual ex-dividend of $.1459 per share.
6/17/2022 Continued the Covered Calls position in iShares Large-Cap China ETF by Rolling-Out the current June 17th FXI Covered Calls position by simultaneously buying-to-close the six June 17th $32.00 Calls at $.34 per share and selling-to-open six July 1st, 2022 $32.00 Calls at $1.16 per share. Note: the FXI price was $32.275 when this transaction was executed.
An overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position if these new 7/1/2022 $32.00 FXI Calls are in-the-money and therefore assigned on the 7/1/2022 options expiration date would be as follows:
Stock Purchase Cost: $20,806.02
= ($36.69 - $2.02) * 600 shares + $4.02 commission
Net Profit:
(a) Options Income: +$2,537.88
= ($2.02 + $.42 + $.38 + $.77 - $.91 + $.77 - $.34 + $1.16) * 600 shares - $24.12 commissions
(b) Dividend Income: +$87.54 = $.1459 per share x 600 shares.
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares assigned at $32.00 strike price at expiration): -$2,814.00
+($32.00 - $36.69) * 600 shares
Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $32.00 strike price at the 7/1/2022 options expiration): -$188.58
= (+$2,537.88 options income +$87.54 dividend income -$2,814.00 capital appreciation)
Absolute Return-on-Investment: -0.9%
= -$188.58/$20,806.02
Annualized Return-on-Investment: -2.5%
= (-$188.58/$20,806.02) * (365/134 days)
