This afternoon a Covered Calls position was established in KraneShares CSI China Internet ETF (ticker KWEB). One thousand shares were purchased at $31.90 and ten June 21st, 2024 monthly Call options were sold at the $30.00 strike price at $2.44 per share--a buy/write net debit transaction of $29.46 per share which provides a maximum $.54 per share time value profit potential. The probability of the Calls being in-the-money on the options expiration date was 73.7% when this transaction occurred.
As you know, I normally prefer establishing Covered Call positions of two to three weeks duration. I will be on vacation touring throughout Italy beginning in another week and therefore will not be doing any of my normal stock research and trading activities until after I return on June 10th. Therefore, the fewer than normal number of Covered Calls positions I am establishing now will not expire until the June 21st, 2024 monthly options expiration date. So, most of my available investing funds will be held during the next month in a Schwab Money Market Fund (SWVXX) with a current annual yield of slightly above 5.0%.
As detailed below, a potential result is +1.8% absolute return-on-investment (equivalent to +20.6% annualized
return-on-investment for the next 32 days) if the KWEB share price is in-the-money (i.e. above the $30.00 strike price) and therefore assigned on its June 21st, 2024 options expiration date.
KraneShares CSI China Internet ETF (KWEB) -- New Covered Calls Position
The Buy/Write transaction was as follows:
5/20/2024 Bought 1,000 shares of CSI China Internet ETF @ $31.90 per share.
5/20/2024 Sold 10 KWEB June 21st, 2024 $30.00 Call options @ $2.44 per share. The Implied Volatility of the Calls was 31.2 when this position was established.
A possible overall performance result (including commissions) for this CSI China Internet ETF Covered Calls position is as follows:
KWEB Covered Calls Net Investment: $29,466.70
= ($31.90 - $2.44) * 1,000 shares + $6.70 commission
Net Profit:
(a) Options Income: +$2,433.30
= ($2.44 * 1,000 shares) - $6.70 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 1,000 CSI China Internet ETF shares assigned at $30.00 strike price at expiration): -$1,900.00
+($30.00 strike price - $31.90 shares purchase price) * 1,000 shares
Total Net Profit Potential (If 1,000 CSI China Internet ETF shares assigned at $30.00 strike price at expiration): +$533.30
= (+$2,433.30 options income + $0.00 dividend income - $1,900.00 capital appreciation)
Potential Absolute Return-on-Investment: +1.8%
= +$533.30/$29,466.70
Potential Annualized Return-on-Investment: +20.6%
= (+$533.30/$29,466.70) * (365/32 days)
