Yesterday, the Covered Calls position in iShares China Large-Cap ETF (ticker FXI) was closed out on its August 26th, 2022 options expiration date. The strike price was $30.50 and FXI was in-the-money at market closing yesterday (the FXI price was $30.70). So, the 500 FXI shares were assigned (i.e. sold) at the $30.50 strike price. As detailed below, the return-on-investment (ROI) result was +2.2% absolute return (equivalent to +15.3% annualized return-on-investment for the 53 days holding period).
This result demonstrates a benefit of hedging our investments via the Covered Calls investing strategy (i.e. selling Call options against our long stock holdings). In this case, FXI declined by -8.2% (from an original buy price of $33.21 to a sold price of $30.50 per share). But the income received from continually selling Calls more than offsets the loss from the stock price decline. So, as detailed below, a -8.2% stock price loss is avoided and a +2.2% absolute gain (a +15.3% annualized return-on-investment) was achieved for this iShares China Large-Cap ETF Covered Calls position.
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.
08/12/2022 5 FXI Call options expired out-of-the-money, so 500 FXI shares remain in the Covered Calls Advisor Portfolio.
8/15/2022 Sold 5 FXI 8/26/2022 $30.50 Calls @ $.36 per share. Note: the FXI price was $29.93 when this transaction was executed.
8/26/2022 Five FXI $30.50 Calls expired in-the-money (FXI price was $30.70 at market close on 8/26), so the 500 FXI shares were sold at the $30.50 strike price.
The overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position was as follows:
Original Net Investment: $15,798.35
= ($33.21 - $1.62) * 500 shares + $3.35 commission
Net Profit:
(a) Options Income: +$1,706.60
= ($1.62 -$.01 +$.80 -$.01 +$.68 +.36) * 500 shares - $13.40 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (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 (500 iShares China Large-Cap ETF shares assigned at $30.50 strike price at expiration): +$351.60
= (+$1,706.60 options income +$0.00 dividend income -$1,355.00 capital appreciation)
Absolute Return-on-Investment: +2.2%
= +$351.60/$15,798.35
Annualized Return-on-Investment: +15.3%
= (+$351.60/$15,798.35) * (365/53 days)
