On September 30 after exiting my position of Cominar REIT inside the margin account I went shopping. I was looking for a possible position instead of trading. So I ended up in the "middle of the road"
I sold a put option for $0.54 for October 16, 2015 in Telus Communications. The strike price is $42.00. When you sell a put option, you are paid a premium for the obligation to BUY 100 shares of the stock on or before expiration. The option seller gets to keep the premium regardless if the market goes up, down, or sideways.
Two scenarios can occur when selling a put option:
Scenario #1 Option not assigned.
# of days to expiration = 16
Option Commission = $10.95
Premium paid to me = $0.54
# of contracts = 1
Strike Price = $42.00
Premium including commissions = 1*100*$0.54 - $10.95
= $43.05
Return = $43.05/($4200-$43.05)
= 1.036%
So my return for 16 days is 1.036%
Annualized Return = 1.036% / 16 *365
= 23.62%
Return on capital is the amount of capital required in your account to put on the trade. Return on capital is usually 20% of break even.
Return on Capital = $43.05/ (.20*($4200-$43.05))
= $43.05 / $831.39
= 5.178%
Annualized Return on capital = 5.178% /16 *365
=118%
Scenario #2 Option is assigned
Annual Dividend Rate = $1.68
Option Assignment Fee = $24.95
Adjusted cost basis = $4200 -(1*100*$0.54 - $10.95) +$24.95
= $4181.90
Yield with option assignment = $1.68/(4181.90/100 shares)
= 4.017%
I will now calculated the yield if I purchased the stock without an option at $42.00.
Adjusted Cost Basis including commission = $4200+ $4.95
= $4204.95
Yield = $1.68 /($4204.95/100 shares)
= 3.995%
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.
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