Today, the Covered Calls Advisor established a 100% cash-secured Puts position in iShares China Large-Cap ETF (Symbol FXI) by selling 3 Sep2015 Put options at the $38.50 strike price. This position indicates that the Covered Calls Advisor is willing to purchase FXI shares at $38.50 (for future covered calls investments) upon the market close on September 18th if the stock declines to below $38.50 at that time. This is a somewhat conservative investment since FXI was at $39.75 (3.1% above the strike price) when this position was established.
As detailed below, this investment will achieve a +1.9% absolute return in 33 days (which is equivalent to a +21.0% annualized return) if FXI remains above $38.50 at the September 18th options expiration date.
This transaction and the associated potential return-on-investment result is detailed below.
1. iShares China Large-Cap ETF (FXI) -- New Position
The transaction was as follows:
08/17/2015 Sold 3 iShares China Large-Cap ETF Sep2015 $38.50 Puts @ $.77
Note: The price of FXI was $39.75 when this transaction was executed.
Note: The Covered Calls Advisor does not use margin, so the detailed information on this position and a potential result shown below reflect the fact that this position was established using 100% cash securitization for the three Put options sold.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $11,550.00
= $38.50*300
Note: the price of FXI was $39.75 when the Put options were sold.
Net Profit:
(a) Options Income: +$219.80
= ($.77*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $38.50 strike price at Sep2015 expiration): +$0.00
= ($38.50-$38.50)*300 shares
Total Net Profit (If FXI is above $38.50 strike price upon the Sep2015 options expiration): +$219.80
= (+$219.80 +$0.00 +$0.00)
Absolute Return (If FXI is above $38.50 strike price at Sep2015 options expiration): +1.9%
= +$219.80/$11,550.00
Annualized Return: +21.0%
= (+$219.80/$11,550.00)*(365/33 days)
The downside 'breakeven price' at expiration is at $37.73 ($38.50 - $.77), which is 5.1% below the current market price.
The 'crossover price' at expiration is $40.52 ($39.75 + $.77). This is the price above which it would have been more profitable to simply buy-and-hold FXI shares until September 18th (the Sep2015 options expiration date) rather than selling these Put options.
