Option Trade

      I am looking to establish another position with Toronto Dominion Bank. The stock is currently trading around $58.00 a share after the recently earnings of all big 5 banks.  Some of the banks have raised their dividends in the last month.

     On Sept 6, I sold 2 put contracts on TD with a strike price of $56.50 and expiration date of Sept 30.  I collected a total premium of  $38.05 after commissions.

Summary:

Strike Price: $56.50
Total Premium Received : $38.05
Days to Expiration: 24
Current Annual Dividend = $2.20
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $38.05 / (2*100*$56.50)
                     = .0034
                     = 0.34%

The total return for 24 days is 0.34%.  The annualized return is 5.12%.  My high interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [2*100*56.50 - $38.05 +$24.95] / 200
                                                = $56.43

Yield on Cost = $2.20 /$56.43 *100 %
                       = 3.899%

What would the yield be if shares purchased directly?

Commission = $4.95

ACB/per share = [2*100*56.50 +$4.95 ] / 200
                         = $56.52

Yield on Cost = ($2.20 / $56.52) * 100%
                       = 3.892 %

Disclosure:  I do not own any shares of TD in any accounts as of this writing.

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.