A Covered Calls position was established this afternoon in iShares China Large-Cap ETF (ticker FXI) with a February 3rd, 2023 options expiration date. Five hundred shares of iShares China Large-Cap ETF were purchased at $31.14 and five February 3rd, 2023 Call options were sold at the $30.00 strike price at $1.53 per share--a net debit transaction of $29.61 per share which provides a $.39 per share time value profit potential. Covered Calls and Cash-Secured Puts are normally synthetically equivalent positions when transacted at the same time and at the same strike price and expiration date. The Covered Calls position was selected since the $.39 time value in the Covered Calls was significantly greater than the $.32 time value in the comparable Puts.
The Implied Volatility of these Calls was 31.4 and the Delta was 71.0 when this transaction was executed. A moderately in-the-money strike price was selected given my current Slightly Bearish Overall Market Meter and its accompanying guideline that Covered Call positions be established at between 2% and 5% in-the-money and with short-term (i.e. one month or less) option expiration dates. This position qualifies in both regards since the $30.00 strike price is 3.8% in-the-money and the 17 days to the options expiration date is within the preferred one-month maximum.
I concur with many economists and Wall Street analysts who expect China's stock market to outperform so-called "developed" markets this year. China's central economic policy is loosening while major developed markets like the U.S., Europe, and Japan are tightening. Furthermore, the apparent (though slow) re-opening from China's Covid lockdown policy will further benefit their economy. Also importantly, FXI's market valuation metrics are very attractive with a current P/E of 8.6 and a P/Book of 1.1 when compared to an S&P 500 P/E of 19.1 and P/Book of 3.9. It seems very likely that Emerging Markets (including China specifically) has a good chance of outperforming U.S. market benchmarks this year.
Fortunately, the Implied Volatility of FXI options are significantly higher than those of a common U.S. market benchmark like the S&P 500 (i.e. SPY). For example, the 2/3/2023 $30.00 Calls I sold today had an Implied Volatility of 31.4 while at the same time the Implied Volatility of comparable SPY Calls was only 22.9 -- so FXI provides a significantly higher potential annualized-return-on-investment than that of SPY. In addition, FXI options are very liquid (even in weekly options) so it is likely I will continue to often establish approximately bi-weekly Covered Calls in FXI in upcoming months this year. Finally, the fact that investing in China-based companies improves the diversification of the Covered Calls Advisor Portfolio appeals to me. In short, it serves as a counterbalance to my normal home country bias.
As detailed below, a potential return-on-investment result is +1.3% absolute return (equivalent to +27.8% annualized
return for the next 17 days) if the iShares China Large-Cap ETF share price is in-the-money (i.e. above the $30.00 strike price) and therefore assigned on the February 3rd, 2023 options expiration date.
iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 
The Buy/Write transaction was as follows:
1/18/2023 Bought 500 shares of iShares China Large-Cap ETF @ $31.14 per share
1/18/2023 Sold 5 FXI Feb 3rd, 2023 $30.00 Call options @ $1.53 per share
A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
FXI Covered Calls Net Investment: $14,808.35
= ($31.14 - $1.53) * 500 shares + $3.35 commission
Net Profit:
(a) Options Income: +$761.65
= ($1.53 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $30.00 strike price at expiration): -$570.00
+($30.00 - $31.14) * 500 shares
Total Net Profit Potential (If 500 iShares China Large-Cap ETF shares assigned at $30.00 strike price at expiration): +$191.65
= (+$761.65 options income +$0.00 dividend income -$570.00 capital appreciation)
Absolute Return-on-Investment Potential: +1.3%
= +$191.65/$14,808.35
Annualized Return-on-Investment Potential: +27.8%
= (+$191.65/$14,808.35) * (365/17 days)
