Using options to build a position in EEM

Frequent readers will recall that CCI had two international portfolio's in 2011 EEM2 and GSPY.
In 2012 CCI will be merging those two portfolios into one global portfolio.  The portfolio plans

• to continue to hold the 7 country etfs described in those funds
• to add in several other country funds
• to more actively trade/hedge this portfolio than done in 2011

As part of the last objective, CCI is working to build  a core position in a leading emerging markets etf (EEM) and trade options around this position to hedge the overall global country portfolio.

At the start of 2012, the portfolio is long one lot of EEM at an effective price of $38.33, and one lot of  naked Jan 6 (weekly) $38 puts.  Building on this position over the past two days:

• Sold the Jan $40 calls against the one lot of shares owned for a credit $.57
• Rolled the Jan 6 (weekly) $38 puts to Jan $38 puts for a net credit of $.55

Setting the details of the math aside for a moment.  

• There is about a 43% chance (according to option theory) that EEM will be trading below $38 at Jan expiration and CCI will be the proud new owner of a second lot of EEM.  Since there is a good chance this may happen an investor really needs to be comfortable with this outcome.   Additionally, CCI will have collected $1.84/share (4.8%) in option premium to lower the cost basis.
• If the stock stays between $38 and $40 over the next few weeks, CCI will still collect the $1.84 option premium and own one lot of shares.
• If it rises over $40, CCI will collect the $1.84 in option premium, and make $1.67 on the first lot of shares being called away.