Established a 100% Cash-Secured Put Position in Baidu Inc.

Yesterday, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Baidu Inc. ADR (Ticker Symbol BIDU) with a Dec2014 expiration and at the $230.00 strike price.  As detailed below, this investment will provide a 1.4+% absolute return in 20 days (which is equivalent to a +25.8% annualized return) if Baidu closes at or above $230.00 at options expiration on Dec 19th.

Details of this transaction along with a potential return-on-investment result are: 

Baidu Inc. (BIDU)
The transaction is as follows:
09/29/2014 Sold 1 out-of-the-money Oct2014 $230.00 Put @ $3.35
Note: The price of Baidu was $237.38 when this transaction was executed.

The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the one Put option sold.

A possible overall performance result (including commissions) for this Baidu transaction would be as follows:
100% Cash-Secured Cost Basis: $23,000.00 = $230.00*100
Note:  the price of BIDU was $237.38 when the Put option was sold.

Net Profit:
(a) Options Income: +$325.30
= ($3.35*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BIDU closes above $230.00 at the Dec2014 options expiration): +$0.00
= ($230.00-$230.00)*100 shares

Total Net Profit (If BIDU is above $230.00 strike price at Dec2014 options expiration): +$325.30 
= (+$325.30 +$0.00 +$0.00)

Absolute Return (If BIDU is above $230.00 at Dec2014 options expiration and Put option thus expire worthless): +1.4%
= +$325.30/$23,000.00
Annualized Return (If BIDU is above $230.00 at expiration): +25.8%
= (+$325.30/$23,000.00)*(365/20 days)

The downside 'breakeven price' at expiration is at $226.65 ($230.00 - $3.35), which is 4.5% below the current market price of $237.38.
The 'crossover price' at expiration is $240.73 ($237.38 + $3.35).  This is the price above which it would have been more profitable to simply buy-and-hold Baidu Inc. stock until December 19th (the Dec2014 options expiration date) rather than holding this short Put option.

Continuation -- Goldcorp Inc. Covered Calls Position

At the Nov2014 options expiration, the $23.00 call options expired.  Today, the covered calls position was re-established at the $22.00 strike price by selling 3 Dec2014 call options in Goldcorp Inc. (ticker symbol GG).  As detailed below, this investment will provide an overall +3.0% absolute return in 81 days (which is equivalent to a +13.7% annualized return) if the stock closes at or above the $22.00 strike price at options expiration on December 19th.
The details of the associated transactions and a potential return-on-investment results are as follows:

1. Goldcorp Inc.(GG) -- Covered Calls Continuation Position

The transactions were as follows:

09/30/2014 Bought 300 GG shares @ $22.959
09/30/2013 Sold 3 GG Nov2014 $23.00 Call Options @ $1.13
Note: the price of GG was $23.04 when these options were sold.
11/21/2014 3 Nov2014 Call Options expired.
12/01/2014 Sold 3 GG Dec2014 $22.00 Calls @ $.53
Note: the price of Goldcorp was $21.15 when these call options were sold.

Two possible overall performance results (including commissions) for this Goldcorp Inc. (GG) covered calls position are as follows:
Stock Purchase Cost: $6,896.65
= ($22.959*300+$8.95 commission)

Net Profit:
(a) Options Income: +$475.60
= 300*($1.13+$.53) - 2*$11.20 commissions
(b) Dividend Income: +$30.00
= $.05 * 300 (monthly dividend) * 2 months
(c) Capital Appreciation (If GG price unchanged at $21.15 at options expiration in Dec2014): -$551.65
= ($21.15-$22.959)*300 - $8.95 commissions; or
(c) Capital Appreciation (If GG assigned at $22.00 at Dec2014 options expiration): -$296.65
= ($22.00-$22.959)*300 - $8.95 commissions

1. Total Net Profit (If GG unchanged at $21.15 at options expiration in Dec2014): -$46.05
= (+$475.60 +$30.00 -$551.65); or
2. Total Net Profit (If GG assigned at $22.00): +$208.95
= (+$475.60 +$30.00 -$296.65)

Two possible overall return-on-investments are:
1. Absolute Return (if GG price unchanged at $21.15 at Dec2014 expiration:): -0.7%
= -$46.05/$6,896.65
Annualized Return If Unchanged (ARIU): -3.0%
= (-$46.05/$6,896.65)*(365/81 days); or

2. Absolute Return if Assigned (at $22.00): +3.0%
= +$208.95/$6,896.65
Annualized Return If Assigned (ARIA): +13.7%
= (+$208.95/$6,896.65)*(365/81 days)

Country Value Rankings

A comprehensive approach to asset allocation extends beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.). It should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Legendary investor John Templeton was a leading advocate for developing a globally oriented value investing perspective to achieve investing outperformance.

The Covered Calls Advisor has developed a method for determining the relative investing worthiness of twenty countries and two regions around the world.  The "Country Value Rankings" table below is based on a weighted-average ranking system.  The eight factors used to calculate these rankings are as follows:














Today's results, shown in the table below, provides a value-oriented and objective framework that assists this advisor to make decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's Portfolio.

From the chart above, the resulting overall market ratings for individual countries and regions are:
Very Bullish (Above 25 total points) -- None
Bullish (20-25 points) -- China, South Korea, Singapore, and Switzerland
Slightly Bullish (15-20 points) -- Taiwan, Russia, Sweden, and Hong Kong
Neutral (10-15 points) -- Germany, Australia, Malaysia, United Kingdom, Italy, U.S.A.,EurAsia, Emerging Markets, and Spain
Slightly Bearish -- Canada, France, Mexico, and Japan
Bearish -- South Africa
Very Bearish -- Brazil and India


Future investments in the Covered Calls Advisor Portfolio will be overweighted in these higher rated countries. It should also be noted that the U.S. is currently ranked 14th of the 24 ratings and the overall rating for the U.S. is Neutral.

This Country Value Rankings spreadsheet is detailed in terms of both the methodology used and the resources used to capture the information for each country. If you are interested in these details and would like further information or clarification, please email your comments and questions (to the address in the top right sidebar of this blog). They are always welcomed.

Hopefully, this information is helpful in your thinking and analysis of your own equities selection methods related to your covered calls investing process!

Regards and Godspeed to All,
Jeff

Established iShares MSCI South Korea Capped ETF Covered Calls

On Monday, a new covered calls position was established in iShares MSCI South Korea Capped ETF (ticker symbol EWY) at the $55.00 strike price and for the Dec2014 expiration as follows:

10/24/2014  Bought 300 shares EWY at $56.68
10/24/2014  Sold 3 EWY Dec2014 $55.00 Call options at $1.93

The return-on-investment for this position will not be reported until this position is closed since there will likely be an ex-dividend on Wednesday, Dec 17th which is two days prior to the Dec 19th expiration; and the announcement on the amount of the dividend will not occur until the day prior to the ex-dividend.