Established Covered Calls in iShares China Large-Cap ETF

A Covered Calls position was established in iShares China Large-Cap ETF (ticker FXI) with a September 24th, 2021 options expiration date.   A buy/write transaction entered at a net debit of $38.61 was executed when 500 shares of iShares China Large-Cap ETF were purchased at $39.8893 and five Sept 24th, 2021 Call options at the $39.00 strike price were sold at $1.28 per share. The Implied Volatility of these Calls was 29.1 today when this transaction was executed and the Delta was 68.2 which approximates the probability of the Call options being in-the-money at the options expiration date.   

The iShares China Large-Cap ETF provides some geographic diversification to the Covered Calls Advisor Portfolio.  It holds 57 companies with the top 3 holdings (Meituan, Tencent, and Alibaba) representing about 25% of the total assets of $4.0 billion in this ETF.  Importantly to the Covered Calls Advisor, the FXI investment manager (BlackRock) is now managing all of FXI's assets on the Hong Kong Stock Exchange and not on the American OTC and NYSE Exchanges, thus avoiding some of the recent governance concerns and controls of the central governments of both China and the U.S. that have resulted in a 25% decline in FXI during the past 7 months.  But with this decline, FXI now seems undervalued relative to the S&P 500 ETF (SPY) since: (1) FXI's  Price-to-Cash Flow ratio is only 11.6 compared with SPY's 15.1; and (2) FXI's Price-to-Sales ratio is 1.5 compared with SPY's 2.9.     

As detailed below, a potential return-on-investment result is +1.0% absolute return (equivalent to +36.3% annualized return for the next 10 days) if the stock price is in-the-money (i.e. above the $39.00 strike price) and therefore assigned on the September 24th options expiration date.

iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 

The Buy/Write transaction was as follows:
09/15/2021 Bought 500 shares of iShares China Large-Cap ETF shares @ $39.8893 per share 
09/15/2021 Sold 5 FXI Sept 24th, 2021 $39.00 Call options @ $1.28 per share

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
Stock Purchase Cost: $19,308.00
= ($39.8893 - $1.28) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$636.65
= ($1.28 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $39.00 strike price at expiration): -$444.65
+($39.00 - $39.8893) * 500 shares

Total Net Profit (If 500 iShares China Large-Cap ETF shares assigned at $39.00 strike price at expiration): +$192.00 

= (+$636.65 options income +$0.00 dividend income -$444.65 capital appreciation)

 

Absolute Return-on-Investment: +1.0%

= +$192.00/$19,308.00

Annualized Return-on-Investment: +36.3%

= (+$192.00/$19,308.00) * (365/10 days)