Established Covered Calls Position in iShares China Large-Cap ETF

A buy/write Covered Calls position was established this afternoon in iShares China Large-Cap ETF (ticker FXI) with an August 4th, 2023 options expiration date.  FXI is very attractive from a valuation perspective since its current P/E of 8.6 and P/Book of 1.1 is less than one-half of the S&P 500 P/E of 19 and P/Book of 3.9.  One thousand shares of iShares China Large-Cap ETF were purchased at $27.51 and ten August 4th, 2023 Call options were sold at the $27.00 strike price at $1.02 per share--a net debit transaction of $26.49 per share which provides a $.51 per share time value profit potential.  Covered Calls and Cash-Secured Puts are normally synthetically equivalent positions when transacted at the same time and at the same strike price and expiration date.  The Covered Calls position was selected since the $.51 time value in the Covered Calls was significantly greater than the $.45 time value in the comparable Puts.

The Implied Volatility of iShares China Large-Cap ETF options are significantly higher than those of a common U.S. market benchmark like the S&P 500 (i.e. SPY).  For example, the FXI 8/4/2023 $27.00 Calls I sold today had an Implied Volatility of 30.9 while at the same time the Implied Volatility of comparable SPY Calls was only 14.3 -- 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 this year.  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, a potential return-on-investment result is +1.9% absolute return (equivalent to +38.5% annualized return-on-investment for the next 18 days) if the iShares China Large-Cap ETF share price is in-the-money (i.e. above the $27.00 strike price) and therefore assigned on the August 4th, 2023 options expiration date.

 
iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 
The Buy/Write transaction was as follows:
7/18/2023 Bought 1,000 shares of iShares China Large-Cap ETF @ $27.51 per share.  
7/18/2023 Sold 10 FXI August 4th, 2023 $27.00 Call options @ $1.02 per share.  The Delta of these Calls was 61.0 when this position was transacted.

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: $26,496.70
= ($27.51 - $1.02) * 1,000 shares + $6.70 commission

Net Profit:
(a) Options Income: +$1,013.30
= ($1.02 * 1,000 shares) - $6.70 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 1,000 iShares China Large-Cap ETF shares assigned at $27.00 strike price at expiration): -$510.00
+($27.00 - $27.51) * 1,000 shares

Total Net Profit Potential (If 1,000 iShares China Large-Cap ETF shares assigned at $27.00 strike price at expiration): +$503.30
= (+$1,013.30 options income +$0.00 dividend income -$510.00 capital appreciation)
Absolute Return-on-Investment Potential: +1.9%
= +$503.30/$26,496.70
Annualized Return-on-Investment Potential: +38.5%
= (+$503.30/$26,496.70) * (365/18 days)