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 the iShares MSCI China ETF (FXI) covered calls as follows:


Established iShares MSCI China ETF (FXI) Covered Calls for Dec09:
11/18/09 Bought 600 FXI @ $45.54
11/18/09 Sold 6 FXI Dec09 $46.00 Calls @ $1.44

Some possible overall performance results(including commissions) for this FXI investment would be as follows:
Stock Purchase Cost: $27,332.95
= ($45.54*600+$8.95 commission)

Net Profit:
(a) Options Income: +$850.55
= (600*$1.44 - $13.45 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation(If stock price unchanged at $45.54): -$8.95
= ($45.54-$45.54)*600 - $8.95 commissions
(c) Capital Appreciation (If stock exercised at $46.00): +$267.05
= ($46.00-$45.54)*600 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.54): +$841.60
= (+$850.55 +$0.00 -$8.95)
Total Net Profit(If stock exercised at $46.00): +$1,117.60
= (+$850.55 +$0.00 +$267.05)

Absolute Return if Stock Price Unchanged at $45.54: +3.1%
= +$841.60/$27,332.95
Annualized Return If Unchanged (ARIU): +36.3%
= (+$841.60/$27,332.95)*(365/31 days)

Absolute Return if Stock Exercised at $46.00: +4.1%
= +$1,117.60/$27,332.95
Annualized Return If Exercised (ARIE): +48.1%
= (+$1,117.60/$27,332.95)*(365/31 days)

The downside breakeven price for this out-of-the-money position is $44.10 ($45.54-$1.44), and as such provides a downside profit protection of up to 3.1% below the purchase price.

Establish United States Natural Gas Fund Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of the United States Natural Gas Fund (UNG) covered calls as follows:

Established the United States Natural Gas Fund (UNG) Covered Calls for Dec09:
11/18/09 Bought 300 UNG @ $8.96
11/18/09 Sold 3 UNG Dec09 $9.00 Calls @ $.51

UNG invests in near-month futures contracts and tracks the price of natural gas. 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 near $4.30, this advisor further believes that Nat Gas now trades at the lower end of its likely price range for the next several months, and that now is a good time to initiate a covered calls position in this investment.

Some possible overall performance results(including commissions) for the UNG transactions would be as follows:
Stock Purchase Cost: $2,696.95
= ($8.96*300+$8.95 commission)

Net Profit:
(a) Options Income: +$141.80
= (300*$.51 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $8.96):
-$8.95 = ($8.96-$8.96)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $9.00): +$3.05
= ($9.00-$8.96)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $8.96): +$132.85
= (+$141.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $9.00): +$144.85
= (+$141.80 +$0.00 +$3.05)

Absolute Return if Unchanged at $8.96: +4.9%
= +$132.85/$2,696.95
Annualized Return If Unchanged (ARIU) +58.0%
= (+$132.85/$2,696.95)*(365/31 days)

Absolute Return if Exercised at $46.00: +5.4%
= +$144.85/$2,696.95
Annualized Return If Exercised (ARIE) +63.2%
= (+$144.85/$2,696.95)*(365/31 days)

The downside breakeven price for this out-of-the-money position is $8.45 ($8.96-$.51), and as such provides a downside profit protection of up to 4.9% below the purchase price.

Establish iShares MSCI South Korea ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of iShares MSCI South Korea ETF (EWY) covered calls as follows:

Established iShares MSCI South Korea ETF (EWY) Covered Calls for Dec09:
11/17/09 Bought 400 EWY @ $45.59
11/17/09 Sold 4 EWY Dec09 $46.00 Calls @ $1.70

EWY is a good investment vehicle for capturing widespread exposure to the diversified South Korean economy and its stock market through a single equity. South Korea is a good value-oriented investment since some traditional value metrics such as P/E and P/Book are significantly less than those of the U.S., while the expectation for GDP growth with low inflation for 2010 also favors South Korea. This investment doubles EWY from 400 to 800 shares owned in the CCAP. Against these 800 shares covered calls have been established by previously selling 4 Nov09 $46 calls and today by selling 4 Dec09 $46 calls.

Some possible overall performance results(including commissions) for the EWY transactions would be as follows:
Stock Purchase Cost: $18,244.95
= ($45.59*400+$8.95 commission)

Net Profit:
(a) Options Income: +$668.05
= (400*$1.70 - $11.95 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $45.59):
-$8.95 = ($45.59-$45.59)*400 - $8.95 commissions
(c) Capital Appreciation (If exercised at $46.00): +$155.05
= ($46.00-$45.59)*400 - $8.95 commissions

Total Net Profit(If stock price unchanged at $45.59): +$659.10
= (+$668.05 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $46.00): +$823.10
= (+$668.05 +$0.00 +$155.05)

Absolute Return if Unchanged at $45.815: +3.6%
= +$659.10/$18,244.95
Annualized Return If Unchanged (ARIU) +41.2%
= (+$659.10/$18,244.95)*(365/32 days)

Absolute Return if Exercised at $46.00: +4.5%
= +$823.10/$18,244.95
Annualized Return If Exercised (ARIE) +51.5%
= (+$823.10/$18,244.95)*(365/32 days)

ProShares Short S&P 500 ETF (SH) -- Closed

The Covered Calls Advisor Portfolio (CCAP) covered calls position in ProShares Short S&P 500 ETF (SH) was closed out today (11/16/09).

The transactions history was as follows:
10/28/09 Bought 600 SH @ $55.92
10/28/09 Sold 6 SH Nov09 $58.00 Calls @ $.65
10/29/09 Bought 300 SH @ $56.05
10/29/09 Sold 3 SH Nov09 $57.00 Calls @ $.90
11/16/09 Bought to Close 3 SH Nov09 $57.00 Calls @ $.05
11/16/09 Bought to Close 6 SH Nov09 $58.00 Calls @ $.05
11/16/09 Sold 900 SH @ $53.22

The ProShares Short S&P 500 ETF tracks the inverse of the S&P 500 index. As stated when the positions were established: "this approach was done to hedge the overall CCAP to provide a better match with the current Overall Market Meter rating (see upper right sidebar) of "Neutral", whereas the CCAP's normal 100% long equities approach tends to result in a slightly bullish posture." But the overall market has continued its bullishness, so the results from this hedge have been very disappointing. The lesson learned from this investment is to avoid trying to anticipate directional changes in the market and to invest along with the market's overall momentum, which at the present time continues to be bullish.

The overall performance results(including commissions) for the SH transactions were as follows:
Stock Purchase Cost: $50,384.90
($55.92*600+$$56.05*300+$8.95*2 commissions)

Net Profit:
(a) Options Income: +$635.35 [600*$.65 + 300*$.90 - (2*$8.95 + 9*$.75) commissions]
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$2,477.95
= [($53.22-$55.92)*600 +($53.22-$56.05)*300 - $8.95 commissions]

Total Net Profit: -$1,842.60
= (+$635.35 +$0.00 -$2,477.95)

Absolute Return = -3.7%
= -$1,842.60/$50,384.90

Annualized Return: -70.3%
= (-$1,842.60/$50,384.90)*(365/19 days)