Country Value Rankings -- China Remains #1

Below is a the Covered Calls Advisor's current 'Country Value Rankings' table. This table provides a value-oriented perspective that assists this advisor make objective decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's portfolio. A comprehensive approach to asset allocation goes beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.); it should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Also in this regard, John Templeton was a leader in advocating the importance of developing a global-oriented value investing perspective to aid us in achieving investing outperformance.





Note: For expanded view, left click on this spreadsheet













The Country Value Rankings table above is based on a weighted-average ranking system. You will notice that there are eight categories (and one factor for each category) used in the analysis of each country as follows:









The next-to-last column on the Country Value Rankings spreadsheet shows the Weighted Average Summation Total for each country. China received the highest total points at 24.22 and thus is now considered the #1 ranked country as a value-oriented investing opportunity. Consequently, as shown in the right sidebar section here called "Current CCA Portfolio Holdings", you will notice that there is a substantial commitment to China-based equities. Also of note in this Country Value Rankings spreadsheet is (1) the dominance of Asian-based countries in each the top six positions; and (2) the U.S. ranks 12th among the 20 countries/regions included in these rankings.

This Country Value Rankings spreadsheet is detailed in terms of both the methodolgy used and the resources used to capture the information for each country. If you are interested in these details and would like further clarification, please share your comments and questions in writing -- they are always welcomed. Click the 'comments' link below to post your feedback. If you prefer confidential communications, my email address is listed at the top-right sidebar of this blog.

Hope this information is helpful in your thinking about your equities selection in your covered calls investing process!

Regards and Godspeed to All,

Jeff

Establish Synaptics Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Synaptics Inc.(SYNA) covered calls as follows:

Established Synaptics Inc.(SYNA) Covered Calls for Aug09:
07/23/09 Bought 300 SYNA @ $33.95
07/23/09 Sold 3 SYNA Aug09 $35.00 Calls @ $1.80

Synaptics Inc is a worldwide leader in developing touchscreen applications for the laptop (58% of revenues) and mobile phone (42% of revenues) industries. Its current market share in worldwide laptops is about 60%. While Synaptics does not currently supply to Apple, some of its primary customers are RIMM, Nokia, and LG. The current growth opportunities for SYNA are substantial, including: (1) The Windows 7 Operating System will be the first Windows system to offer a multi-touch screen interface support capability; (2) As reported by Intel in its most recent quarterly earnings conference call, they are now seeing a resurgence in notebook demand; and (3) the announcement this week of its product-line offerings expansion with its new ClearPad 1000 (low-end) and 3000(high-end) products. Each of these three situations will provide strong incremental demand for Synaptics' product offerings. In addition, Synaptics is attractive from a valuation perspective since the current year P/E of 16 seems relatively low in relation to the potential for 20%+ annual growth over the next several years.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for SYNA. It scored well above the minimum threshold of 20.0 with a Total Points rating of 22.76.





















Note: For expanded view, left click on the spreadsheet above.

Some potential results from this transaction are:
Absolute Return if Stock Price Unchanged at $33.95: +5.3%
Annualized Return If Unchanged (ARIU): +64.5%

Absolute Return if Exercised at $35.00: +8.4%
Annualized Return If Exercised (ARIE): +102.1%

Downside Breakeven Price Point: $32.15
Downside Breakeven Protection: 5.3%

Continuation Transaction -- United States Natural Gas Fund ETF Covered Calls

Last Friday was expiration Friday for July 2009. In a Covered Calls Advisor's blog recent post, it was noted that of the nine covered calls positions for July 2009, four were exercised and the stock was called away. The remaining five Jul09 positions expired out-of-the-money. On Monday it was decided to sell one stock (BAC) and to retain three stocks (CHL, EME, and SOHU) and to establish Aug09 covered calls for each one. A final decision regarding the remaining position in the United States Natural Gas Fund ETF (UNG) was deferred until a later time.

Today this advisor decided to retain the 1000 shares currently held in UNG and to establish Aug09 covered calls against this holding. UNG invests in near-month futures contracts and tracks the price of natural gas. As described last month when the initial covered calls position in UNG was established, "the Covered Calls Advisor believes that natural gas is a cost effective, clean, and abundant alternative fuel and will be an increasingly important resource in fulfilling future U.S. energy needs. At its current price, this advisor further believes that Nat Gas now trades at the lower end of its likely price range for the next several months." The price of natural gas has remained at a price level similar to where it traded one month ago when the initial covered calls were established, and my conviction remains unchanged that nat gas prices will increase during the next several months. Consequently, a continuation of the prior UNG covered calls position was established today with a $14.00 strike price and an Aug09 expiration.

The transactions history to date and some potential investment results are detailed below.

United States Natural Gas Fund ETF (UNG) -- Continuation
The transactions history to date is as follows:
06/30/09 Bought 1000 UNG @ $13.92
06/30/09 Sold 10 UNG Jul09 $14.00 Calls @ $.75
07/18/09 Jul09 Options Expired
The price of UNG closed at $13.16 on expiration Friday.
07/22/09 Sell-to-Open (STO) 10 UNG Aug09 $14.00 Calls @ $.75
The price of UNG was $13.73 today when this transaction was executed.

The overall performance results(including commissions) for the UNG transactions would be as follows:
Stock Purchase Cost: $13,928.95
($13.92*1000+$8.95 commission)

Net Profit:
(a) Options Income: +$1,467.10
= (1000*($.75+$.75) - 2*$16.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock unchanged at $13.73): -$198.95
= ($13.73-$13.92)*1000 - $8.95 commissions
(c) Capital Appreciation (If exercised at $14.00): +$71.05
= ($14.00-$13.92)*1000 - $8.95 commissions

Total Net Profit(If stock price unchanged at $13.73): +$1,268.15
= (+$1,467.10 +$0.00 -$198.95)
Total Net Profit(If stock price exercised at $14.00): +$1,538.15
= (+$1,467.10 +$0.00 +$71.05)

Absolute Return if Stock Price Unchanged at $13.73: +9.1%
= +$1,268.15/$13,928.95
Annualized Return If Unchanged (ARIU): +62.7%
= (+$1,268.15/$13,928.95)*(365/53 days)

Absolute Return if Exercised at $14.00: +11.0%
= +$1,538.15/$13,928.95
Annualized Return If Exercised (ARIE): +76.0%
= (+$1,538.15/$13,928.95)*(365/53 days)

Establish iShares MSCI China ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI China ETF (FXI). The previous FXI position with a Jul09 expiration ended in-the-money, so the FXI ETF position was called away. Since China continues to rank #1 in this advisor's '2009 Country Value Rankings', it was decided to establish a new covered calls position in FXI with an Aug09 expiration. A summary of the transactions today is as follows:


Established iShares MSCI China ETF (FXI) Covered Calls for Aug09:
07/22/09 Bought 1000 FXI @ $40.44
07/22/09 Sold 10 FXI Aug09 $39.00 Calls @ $2.45


Some of the key value-oriented metrics for China are as follows:
- Real GDP growth of approximately 7.5% in 2009. This compares with a projection of negative growth this year in most of the world's major countries.
- Estimated inflation of 0%
- Price/Book ratio of 2.37 is a below-average valuation relative to other countries (for example, U.S. is currently at 3.41).


The FXI ETF was selected as the primary investment vehicle for achieving exposure to China's stock market performance. It consists of market-cap-weighted positions in the 25 largest companies in China, and although it is most heavily weighted in the financial, energy, and telecommunications sectors, it still provides a relatively good way to diversify across the Chinese economy. Since China remains as the Covered Calls Advisor's top investment idea, a major commitment of 15% of the total CCAP is now allocated to FXI covered calls.

Some key indicators for this FXI covered calls position are:

Absolute Return if Exercised at $39.00: +2.5%
= [$2.45 - ($40.44 - $39.00)]/$40.44
Annualized Return if Exercised(ARIE): +29.4%
= [$2.45 - ($40.44 - $39.00)]/(365/31 days)

Downside Breakeven Price Point: $37.99
Downside Breakeven Protection: 6.1%
This in-the-money position also affords up to 3.6% [($40.44-$39.00)/$40.44] downside protection available while still achieving the maximum potential annualized return-on-investment of 29.4% from this covered calls position.