GM's current price of $37.15 is near its low for the past 3 years and Wall Street analysts that cover GM have a current target price of $47.19 (+27.0% above today's purchase price). I am also bullish on GM now given both: (1) its good valuation metrics (such as low p/e ratio, EV/EBIT, and price-to-book values) in comparison to their prior 5-year averages; and (2) the fact that GM is estimated to make a dramatic EPS increase this quarter to $1.63 per share versus $1.14 in the same quarter last year, and they also have exceeded analysts' EPS estimates in each of their last three quarters. Also as I prefer, the Implied Volatility of these GM Calls was 33.5 which is well above that of VIX which is currently only 14.0.
Regarding the iShares China Large-Cap ETF position, so far this year FXI has underperformed U.S. stock market benchmarks. But I concur with many economists and Wall Street analysts who believe there is a good likelihood that Emerging Markets (including China's stock market) will outperform the "developed" markets (such as the U.S., Europe, and Japan) for the remainder of this year. China's central economic policy is loosening while major developed markets like the U.S., Europe, and Japan are tightening. Furthermore, the apparent (though slow) re-opening from China's Covid lockdown policy will further benefit their economy. Also importantly, FXI's market valuation metrics are very attractive with a current P/E of 8.6 and a P/Book of 1.1 when compared to an S&P 500 P/E of 19.1 and P/Book of 3.9. It seems very likely that Emerging Markets (including China specifically) have a good chance of outperforming U.S. market benchmarks for the remainder of this year.
Fortunately, the Implied Volatility of FXI options are significantly higher than those of a common U.S. market benchmark like the S&P 500 (i.e. SPY). For example, the 6/30/2023 $27.35 Calls I sold today had an Implied Volatility of 29.4 while at the same time the Implied Volatility of comparable SPY Calls was only 14.0 -- so FXI provides a significantly higher potential annualized-return-on-investment than that of SPY. In addition, FXI options are very liquid (even in weekly options) so it is likely I will continue to often establish approximately bi-weekly Covered Calls in FXI in upcoming weeks. Finally, the fact that investing in China-based companies improves the diversification of the Covered Calls Advisor Portfolio appeals to me. In short, it serves as a counterbalance to my normal home country bias.
As detailed below, the potential return-on-investment results for these Covered Calls positions are:
- For General Motors Company: +1.1% absolute return (equivalent to +36.7% annualized return-on-investment for the next 11 days) if the stock is assigned on its June 30th options expiration date.
- For iShares China Large-Cap ETF: +1.3% absolute return (equivalent to +44.6% annualized return-on-investment for the next 11 days) if the stock is assigned on the June 30th, 2023 options expiration date.
1.General Motors Co. (GM) -- New Covered Calls Position
06/20/2023 Bought 500 GM shares @ $37.15
06/20/2023 Sold 5 GM June 30th, 2023 $36.00 Call options @ $1.55 per share
Note: a simultaneous buy/write transaction was executed at a net debit limit order of $35.60 per share.
A possible overall performance result (including commissions) for this General Motors Covered Calls position is as follows:
GM Covered Calls Position Net Investment: $17,803.35
= ($37.15 - $1.55) * 500 shares + $3.35 commission
Net Profit:
(a) Options Income: +$771.65
= ($1.55 per share x 500 shares) - $3.35 commissions
(b) Dividend Income: +$0.00
+($36.00 - $37.15) * 500 shares
2. iShares China Large-Cap ETF (FXI) -- New Covered Calls Position
The Buy/Write transaction was as follows:
6/20/2023 Bought 900 shares of iShares China Large-Cap ETF @ $27.87 per share
6/20/2023 Sold 9 FXI June 30th, 2023 $27.35 Call options @ $.86 per share
A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
FXI Covered Calls Net Investment: $24,315.03
= ($27.87 - $.86) * 900 shares + $6.03 commission
Net Profit:
(a) Options Income: +$767.97
= ($.86 * 900 shares) - $6.03 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 900 iShares China Large-Cap ETF shares assigned at $27.35 strike price at expiration): -$441.00
+($27.35 - $27.87) * 900 shares
Potential Total Net Profit (If 900 iShares China Large-Cap ETF shares assigned at $27.35 strike price at expiration): +$326.97
= (+$767.97 options income +$0.00 dividend income -$441.00 capital appreciation)
Absolute Return-on-Investment Potential: +1.3%
= +$326.97/$24,315.03
Annualized Return-on-Investment Potential: +44.6%
= (+$326.97/$24,315.03) * (365/11 days)
