I decided to maintain the FXI Covered Calls position by rolling-down-and-out the existing Covered Calls an additional two weeks to the August 12th, 2022 expiration and from the current $31.00 strike price to the $30.50 strike price. This credit spread transaction was executed at a net credit of $.67 per share ($.68 credit - $.01 debit).
As detailed below, a potential return-on-investment result is +1.1% absolute return (equivalent to +10.4% annualized
return for the 39 days holding period) if the FXI price is in-the-money (i.e. above the $30.50 strike price) and therefore assigned on the August 12th options expiration date. If this result is achieved, it will demonstrate an advantage of hedging our investments with the Covered Calls investing strategy (i.e. selling Call options against our long stock holdings). In this case, FXI will have declined by -8.2% (from a buy price of $33.21 to a sold price of $30.50). But the income received from continually selling Calls more than offsets the loss from the stock price decline -- so a -8.2% stock price loss is avoided and a +1.1% gain (a +10.4% annualized return-on-investment) would be achieved for this Covered Calls position if it is assigned at the August 12th options expiration.
iShares China Large-Cap ETF (FXI) -- Covered Calls Position Rolled Out
The original net debit limit order buy/write transaction was as follows:
7/5/2022 Bought 500 shares of iShares China Large-Cap ETF shares @ $33.21 per share
7/5/2022 Sold 5 FXI July 15th, 2022 $32.00 Call options @ $1.62 per share
7/15/2022 Bought-to-Close 5 FXI July 15th, 2022 $32.00 Call Options @ $.01 per
share and simultaneously Sold-to-Open 5 FXI July 29th, 2022 $31.00 Calls @ $.80 per share.
7/29/2022 Bought-to-Close 5 FXI July 29th, 2022 $31.00 Call Options @ $.01 per
share and simultaneously Sold-to-Open 5 FXI August 12th, 2022 $30.50 Calls @ $.68 per
share per
share.
A possible overall performance result (including commissions) if this iShares China Large-Cap ETF Covered Calls position is assigned at the 8/12/2022 options expiration date is as follows:
Original Net Investment: $15,798.35
= ($33.21 - $1.62) * 500 shares + $3.35 commission
Net Profit:
(a) Options Income: +$1,529.95
= ($1.62 -$.01 +$.80 -$.01 +$.68) * 500 shares - $10.05 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $30.50 strike price at expiration): -$1,355.00
+($30.50 - $33.21) * 500 shares
Total Net Profit (If 500 iShares China Large-Cap ETF shares assigned at $30.50 strike price at expiration): +$174.95
= (+$1,529.95 options income +$0.00 dividend income -$1,355.00 capital appreciation)
Absolute Return-on-Investment: +1.1%
= +$174.95/$15,798.35
Annualized Return-on-Investment: +10.4%
= (+$174.95/$15,798.35) * (365/39 days)
