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I purchased TD stock when I sold a naked put option which was assigned due to the price of the stock fell below the strike price at the expiration date. You can read this transaction here.
Naked put assignment : $5553.90 cost basis
Dividends received : $47.00
Option premium received for call option: $99.05
If call option is assigned:
Proceeds = 100 shares *strike price = 100 * $56.00 = $5600
Profit = ((Proceeds + call option premium received - option assignment fee) - Naked put assignment) + dividends received
= $5600 +$99.05 - $24.95 - $5553.90 +$47.00
= $167.20
ROI = Profit / Initial investment =
= 167.20 /5553.90
= 3.01 %
If the option is not called away, I will still own the stock and still keep the premium which I was paid right away. Please note that my strike price is $56.00 for both the put option I sold in 2014 and for this covered call transaction.
Disclosure: Long TD
DISCLAIMER:
I am with you all the way. In my opinion, you cannot beat cash in hand. Plus, you are getting the price you want if it is called away. Lots of stocks to jump right back into if it is called.
ReplyDeleteKeep cranking,
Robert the DividendDreamer
Robert,
DeleteIt is always good to receive cash flow other than a job. Selling this call option does mean if it is called away, I can use the money to buy this stock again or another stock. I would not mind re-purchasing TD stock but at a lower price than $56.00. During the time that I have owned TD, the price has varied from around $50 to over $57 dollars
A good way to generate extra cash flow. I have used covered calls in teh past and had mixed results with it. That a neat sum of money and ROI for not really doing much...but I still prefer holding the stocks for dividends as the upside is limited when writing calls.
ReplyDeleteCoincidentally, I just initiated a position in TD today.
cheers
R2R
Roadmap2Retire,
DeleteI have used covered calls off and on over the years. I once sold a covered call in RY for around $44.00 which was assigned. As this stock currently trades at around $77 per share now, I have missed out on a large capital gains over the last few years.
My cost basis was high on this stock is the main reason I sold a covered call.
I generally don't like selling options. When you sell options, you're profit is defined and limited but your loss is theoretically unlimited. If you're going to sell call options, why not just buy a put instead? I get that you like the cash flow, but you are still making a market directional bet.
ReplyDeleteInvesting on Track,
DeleteFor me in this transaction, buying the covered call allows me to collect premium up front. I could of bought a put at the same strike price. So if the stock fell in price by a large amount, I could exercise the put option and lock in the profit. If I did this strategy, I would collect premium from the covered call and pay for the insurance (buying put option). The cost of the put option will be less than the premium received from the covered call if done at the right time.
As this is a stock I have no problem holding on for the long term, that is the main reason for not buying a put option. Selling the cover call allows me to collect the premium. If the cover call was called away, I would look to enter this stock at a lower price than initially before.
I have a similar strategy of selling puts and selling covered calls. I believe selling covered call is a very conservative way to generate some extra income along the way. I am much influenced by a book "Options Trading for Conservative Investors -- Increasing Profits, Without Increasing Your Risk."
ReplyDeleteMoney Unbinding,
DeleteSelling puts and selling calls for the same position can provide cashflow. When starting off by selling puts first, the investor or trader gets the premium up front. If the stock price does not fall below the strike price, you can repeat the process of selling another put.
In this case, I wrote a call to try to make some extra money off this position. If the option is assigned, my capital gain will be greater. If the option gets assigned I will look to re-enter this position at a lower price as this is a company I would like to have in my portfolio for the long term. If the situation didn't exit with the low oil prices, my strategy would be to hold the stock and average down in the future by a smaller amount of shares.
Option strategies can be confusing at times.