The iShares China Large-Cap ETF is a covered calls position established at the $40.00 strike price and the United Continental position is a short 100% cash-secured Puts position at the $60.00 strike price. As detailed below, the iShares China investment will yield a +1.3% absolute return in 33 days (which is equivalent to a +14.5% annualized return-on-investment) if FXI closes above the $40.00 strike price on the Feb2015 options expiration date. The United Continental position would provide a +2.4% absolute return over the same 33 day time period (which is equivalent to a +27.0% annualized return-on-investment).
The transactions and potential return-on-investment results are detailed below:
1. iShares China Large-Cap ETF (FXI) -- New Position The transactions were as follows:
01/20/2015 Bought 400 iShares China Large-Cap ETF shares @ $41.63
01/20/2015 Sold 4 FXI Feb2015 $40.00 Call options @ $2.23
Note: The price of FXI was $41.63 today when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
Bought 400 share FXI: $16,660.95
= $41.63*400 + $8.95 commission
Net Profit:
(a) Options Income: +$880.05
= ($2.23*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $40.00 strike price at Feb2015 expiration): -$660.95
= ($40.00-$41.63)*400 shares - $8.95 commissions
Total Net Profit (If FXI is above $40.00 strike price at Feb2015 options expiration): +$219.10
= (+$880.05 +$0.00 -$660.95)
Absolute Return (If FXI is above $40.00 strike price at Feb2015 options expiration): +1.3%
= +$219.10/$16,660.95
Annualized Return (If FXI is above $40.00 at expiration): +14.5%
= (+$219.10/$16,660.95)*(365/33 days)
The downside 'breakeven price' at expiration is at $39.40 ($41.63-$2.23), which is 5.4% below the current market price of $41.63.
The 'crossover price' at expiration is $42.23 ($40.00 + $2.23). This is the price above which it would have been more profitable to simply buy-and-hold FXI until Feb 20th (the Feb2015 options expiration date) rather than establishing this covered calls position.
2. United Continental Holdings Inc. (UAL) -- New Position
The transactions were as follows:
01/20/2015 Sold 3 UAL 100% cash-secured $60.00 Put options @ $1.50
Note: The price of UAL was $67.25 today when this transaction was executed.
The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that both of these positions were established using 100% cash securitization for the Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $60.00*300
Net Profit:
(a) Options Income: +$438.80
= ($1.50*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL is above $60.00 strike price at Feb2015 expiration): +$0.00
= ($60.00-$60.00)*300 shares
Total Net Profit (If UAL is above $60.00 strike price at Feb2015 options expiration): +$438.80
= (+$438.80 +$0.00 +$0.00)
Absolute Return (If UAL is above $60.00 strike price at Feb2015 options expiration): +2.4%
= +$438.80/$18,000.00
Annualized Return (If AA is above $14.00 at expiration): +27.0%
= (+$438.80/$18,000.00)*(365/33 days)
The downside 'breakeven price' at expiration is at $58.50 ($60.00 - $1.50), which is 13.0% below the current market price of $67.25.
The 'crossover price' at expiration is $68.75 ($67.25 + $1.50). This is the price above which it would have been more profitable to simply buy-and-hold UAL until Feb 20th (the Feb2015 options expiration date) rather than selling these Put options.
