On May 13, I sold a put option in Telus Corporation that trades in Canada. The put option had 06/19/2015 for expiration and the strike price was $40.00. The option was not assigned as the price of the stock remained above the strike price including at expiration. You can read about the selling of the put option here, which is the option trade #1 in the link.
Recap: Premium collected after commissions : $35.05
Return on Capital : 4.420%
Return on Capital Annualized : 43.6%
Days to Expiration : 37
We can also calculate the return:
Return = premium collected / (cost of investment - option premium collected)
Return = $35.05 /($4000-$35.05)
Return = 0.884%
Return annualized = Return/37*365
Return annualized = 8.286%
The second option trade was selling a put option in Rogers Communications Class B stock at a strike price of $42.00. The price of the stock was trading lower on the day of the expiration and remained below the strike price the entire day of Jun 19, 2015. For my broker, usually the option stays in the account until Monday evening, as that is the day the trade is updated. But the put position does not show in my account and the balance as not been changed. According to my brokerage account, the stock last traded at $41.83. So will have to wait until Monday evening to find out if the option was assigned.
For disclosure, I own 100 shares of RCI.B prior to making this trade.
To be continued in Part #2.
Disclosure: Long RCI.B
DISCLAIMER
I
am not a financial planner, financial advisor, accountant or tax
attorney. The information on this blog represents my own thoughts and
opinions and should NOT be taken as investment or business advice.
Every
individual should do their due diligence to make their own financial
decisions based on their financial situation and tolerance for risk.
It's interesting to follow your foot steps in Options selling. I have been trading options for almost 2 years now and I wonder why not more dividend investors use that way of making more money. I would love to read more about your settings when you sell which options though! Keep up the good work :-)
ReplyDeleteButterfly Millionaire,
DeleteThanks for dropping buy. Many investors believe options are risky and too complicated to understand especially when it comes to advanced option strategies.
With simply buying stock, an investor can chose to buy odd lots of shares if they desire.
My approach to selling put options is that if I am willing to buy stock at say $40.00 a share for 100 shares that is currently trading at $41.00, why not collect a premium for something I am going to do ANYWAY. I am stressing "anyway" as I watched a video before about selling put options and the presenter stressed the word.
I think another reason why investors choose not to sell put options if they sell the option that have to have cash available to purchase the stock. During the wait time, a great deal might come on a stock they want to buy and miss out. Also, a lot of investors do not want to use margin to purchase investments.
A lot of investors do not own 100 shares of a particular stock. So they are not able to write covered calls. Other investors will shy away from covered calls as they want to own the stock for a long time and collect more dividend income along the way. When selling a covered call, you limit your upside.
Basically, I think most investors just want to keep things simple and collect dividend income now and even more in the future.
Thanks, all points do make sense to me. It is really a different kind of mindset. Keeping things simple is never wrong. Earning the extra Dollar on our hard earned cash should still be more in focus! It is just amazing how easy you can double your dividend cash flow with simply selling covered call options!
Delete