Wednesday, May 17, 2017

Option Trades Update

       May 17 was a down day on the North American markets. Investors and traders are concerned over recent events involving the President of United States Donald Trump.  Adding to this, is the low interest rates that we have currently.  Another major issue is that of Home Capital Group (ticker symbol HCG.TO).  HCG.TO, which is in the mortgage business, continues to be the major topic of discussion. Savers are continuing to withdraw their money from their high interest savings account, which is putting strain on the HCG.TO bottom line.  HCG.TO recently got a 2 billion line of credit from HOOPP, which is Healthcare of Ontario Pension Plan to try to stay a float.  HCG.TO has said in the last week, that replacing the HOOPP line of credit is a top priority due to the high interest rate on the line of credit.

       In Canada, the TSX Composite Index was down 269.65 points which represents 1.73% decrease from the day before. The S&P 500 was down 43.64 points, or 1.82%, for the day.  The Dow Jones Industrial Average was down 372.82. or 1.78%, for the day.

      I currently have to put options set to expire this month. My short put in Royal Bank is set to expire on May 19th.  The stock RY.TO closed at $91.45 today. My strike price is $92.00 and it is for a single contract.

     My other put option is in another Canadian bank, TD Bank.  My short put in TD is set to expire on May 26th.  The stock TD.TO closed today at $62.26, which is below my strike price of $62.50.  I also currently own 100 shares of TD.TO.

     Today's closing prices of these stocks are over $8.00 per share below their 52 week highs. I am not worried at all with option assignment on these stocks, as the banks have proven over the years that they are excellent companies to own.  If Royal Bank option gets assigned I will likely write covered calls as I would like my entry point to be lower. 

Disclosure: Long 100 shares of TD in margin account.

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.

Wednesday, May 10, 2017

Option Trade

          The big banks in Canada have falling in value recently. In particular, Royal Bank of Canada (RY.TO) has falling from it's 52 high of $99.90 from a few months ago.  RY.TO is currently trading at  $93.33 per share.

       The major topic in the news in Canada is the company called Home Capital Group (HCG.TO).  The company provides high interest savings accounts for savers at low interest rate and then writes mortgages with a higher interest rate, and basically makes money off the difference.  This business model has been failing as savers have been pulling there money out in droves.  The savers are doing this as they do not feel comfortable having their money there due to recent events happening to HCG.TO.  HCG.TO has recently gotten a $2 billion line of credit from Health Care of Ontario Pension Plan, which they have used approximately 1.4 billion dollars of to stay a float.

       In Canada, there is high cost of housing in Vancouver, Toronto, Edmonton, Calgary and Fort McMurray.  The highest of these costs and in Vancouver and Toronto.  Some people are talking about a possible housing correction, so this has caused the bank stocks to trade lower as of late and slightly offset with investors chasing yield by purchasing shares in the banks.

      So on May 10, I sold a put option in RY with a May 19, 2017 expiration day.  I collected a premium of $41.05 after commissions.

Summary:

Strike Price: $92.00
Total Premium Received : $36.05
Days to Expiration: 9
Current Annual Dividend = $3.48
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $36.05/ (1*100*$92.00)
                     = .00392
                     = 0.392%

The total return for 9 days is 0.392%.  The annualized return is 15.89%.  For comparison, my interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*$92- $36.05+$24.95] / 100
                                                = $91.89


Yield on Cost = $3.48/$91.89*100 %
                       = 3.787%

 What would the yield be if shares purchased directly at $92.00 using a limit order?

Commission = $4.95

ACB/per share = [1*100*$92.00+$4.95 ] / 100
                         = $92.05

Yield on Cost = ($3.48/ $92.05) * 100%
                       = 3.781%

Conclusion:

      From Scenario #2, we can see the yield on cost would be roughly the same although receiving a net premium of $36.05.  The option assignment fee of $24.95 greatly reduces the difference between the yield on cost of option assignment to that of purchasing shares out right.  Not all brokerages have an option assignment/exercise fee.

     As of this time, I do not plan to open an account with Interactive Brokers. I will open an account with Interactive Brokers in the future.

Disclosure: Currently do not own any shares of RY.TO in any accounts.


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.



Sunday, May 7, 2017

One Thing You Can Be Sure Of In LIfe

          We all know people who spend their entire paychecks.  These people live paycheck to paycheck. If you do not know anybody specifically, you can roughly tell by their actions if they live paycheck to paycheck.  Some of these people are in dire straights, while others are just more managers of their money. Some people have plans for their money even before they receive it.  These people might have a lot more fun, but they are also a lot more stressed.  Unfortunately for the rest of us, we here the complaining and snapping at people. 



         The one thing we can be sure of that will happen in an individual's life is an emergency.  These emergencies can be things such as car breaks down, roof leaks, or a job loss.  Emergencies can occur without any notice.  People need to prepare for emergencies before they happen.  People prepare by saving 3 to 6 months of expenses in an account for emergencies.  This is called an emergency fund. 

         The emergency fund  has to be easily accessible.  This can be money kept in a savings account, money market fund,  or somewhere in your house.  By having an emergency fund, an individual will not have use a credit card or sell investments to fund these emergencies.

        Having an emergency fund also allows an individual to sleep better at night.  How much money should be in an emergency fund?  The amount of money put in an emergency fund should be at least 3 to 6 months worth of expenses, but an individual should make there emergency fund as big as they need.

   How would you feel when somethings happens like this:
  • car breaks down
  • furnace breaks down
  • get sick
  • lose a job
  • sewage backup
  • house fire
   For anything that people have insurance for, there is a delay from receiving moving from insurance. For example,  if your house or place of residence catches fire and you have to go to a hotel, you will have immediate access to the money via the emergency fund instead of putting money on a credit card. The insurance will take a few days to go through and you might have to put up a fight to get it.

   People who save money these days will actually lose money due to the interest rates that banks pay on savings accounts and how this compares to inflation.  See, the emergency fund is insurance and not an investment.

    Do you have an emergency fund?
  
Photo Credit:  www.shutterstock.com

Saturday, May 6, 2017

No Money to Invest?

        When it comes to investing, a lot of people say they cannot afford to invest.  I think people can not afford NOT to invest. What do I mean by that?  Investing means putting your money to work.  If a person spends on their income, they will not get anywhere in life. People often say you need tens of thousands of dollars to invest. The modern day potential investor has a lot of advantages over someone years ago.

       Years ago before the birth and rise of discount brokerages meant that investors had 2 options. They could call up the brokerage and purchase shares or units at high commission. This made it harder to pick entry points.  Also investor's were not able to see real time quotes like they do today.

        The investors of today have another method still at their disposal.  The real old method of purchasing shares is directly through the transfer agent. In Canada, can purchase shares through the transfer agent directly.  Before using the transfer agent, often times the potential investor has to buy a share from another person.  In Canada, this can be done through the website dripprimer.ca.  An individual would then go to the Share Exchange board and put a message on the board saying they are looking for a share in a certain stock. A share certificate is then sent to the transfer agent by the seller and the buyer would receive the share in a few days or so.  When an investor purchases shares through the transfer agent, they have no control of the purchase price of the new shares. Purchasing shares through the transfer agents means investors do not pay commissions and the entire dividend is reinvestment or paid out.  Some of the companies have a DRIP discount on shares purchased with re-invested dividends.  This method of investing do not require a lot of upfront costs.

     Nowadays, investors pay low commissions via discount brokerages. These discount brokerages have commissions of $10 or under compared to full brokerages which have commissions of $30 or more.  Unlike a full brokerage, an investor using a discount brokerage has to  pick their stocks on the own after doing their own research.  Currently, Dan of Sharpe Trade is proving a way this can be down.  You can read about this project, called the Sharpe Income project on Sharpe Trade and search for Sharpe Income or click on the Sharpe Income label.  Their entries on Monday provide a link to the start of the project and also a link for a spreadsheet.

   For disclosure, I have no affiliation with Sharpe Trade LLC or any of its products on their website. 

      A few of the discount brokerages off commission free ETFs for purchasing only or for both purchasing and selling. The fees associated with the purchase or selling is a ECN, or electronic exchange network, fee which is usually very small.

      Exchange Traded Funds, aka ETFs, are cheaper than mutual funds when it comes to fees and trade like a stock on the stock exchange.  Investment fees eat into returns, so an investor should keep their fees as low as possible.

      The power of DRIPs is shown in the following video.

Wednesday, May 3, 2017

Dividend income Update - April 2017




      The month of April is another month of dividend income landing in my accounts. This money is used to help pay my expenses if it is needed. If the money is not needed, it is ALL used to purchase new investments to further increase my cash flow.

        The price of barrel of crude oil has falling during the month, and it currently sits just below $48.00 per barrel.  As April and May is when breakup occurs in the Western Canadian oil patch.  What is breakup? Breakup is where oil rig activity slows to a crawl as the ground is thawing.  This thawing causes the dirt roads and lease roads to be difficult to have large trucks travel.

      One thing for sure, is that I was paid dividends and distributions for being a shareholder or unit holder in  various companies or funds. In  Sept 2016, the Dream Office REIT in the margin account will be counted as dividend income  for the first time.

 Non-registered Account

  • Bank of Nova Scotia (BNS) - $24.96  (transfer agent)
  • Bank of Nova Scotia (BNS) - $15.20
  • Bell Canada Enterprises (BCE) - $71.75
  • Canadian Imperial Bank of Commerce (CM) - $ 35.56
  • Enerplus (ERF)  -$ 5.58
  • Dream Office REIT   (D.UN)  - $77.25
  • Roger's Communications Class B (RCI.B) - $96.00
  • Shaw Communications (SJR.B)    - $19.75

    TFSA
    • A&W Royalties Income Fund (AW.UN) - $5.05
    • Boston Pizza Royalties Income Fund   (BPF.UN) - $26.91
    • iShares 1-5 yr Laddered Canadian Corporate Bond ETF (CBO) - $0.62
    • Cominar REIT (CUF.UN) - $21.07
    • Dream Office REIT   (D.UN)  - $ 17.63
    • Horizons Natural Gas Yield ETF (HNY)  - $4.45
    • Killam Properties REIT (KMP.UN) - $  15.60
    • TFI International (TFII) - $9.50

    Total = $446.88
        
        As the amount of distribution from D.UN inside my margin account, will have a large impact on the comparison of dividend income from 12 months ago. This dividend income total of $446.88 represents an increase of 8.09% from 3 months ago.

         Dream REIT has reduced the amount of distribution they pay monthly which was announced in February 2016.  Recently, I wrote about purchasing more units of D.UN inside a margin account.  Starting in September, the distribution from this D.UN inside the margin account will be included in my dividend income.

        I received $0.00 in options premiums in April 2016.

         I will update my dividend income tab with the new amount I will include my option premium income also.  It is great to see money from passive income sources deposited into my brokerage account every single month.

    How was your dividend income for April?

    Disclosure : Long all securities above.

    Photo Credit: www.mipaq,co.za

    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.






    Tuesday, May 2, 2017

    Option Trade

     

       



            The big banks in Canada have falling in value recently. This decrease in value can be the result of a lot of things currently.  We are due for a recession in North America ,as historically, we have had a recession every 8-10 years.  Currently, right now Alberta is in a recession all of its own in Canada.  The province of Alberta major employer is the oil and gas industry.  The oil and gas industry involves drilling companies, production companies, oilfield service companies and companies whose derive a lot of business due to indirectly serving the oil and gas industry.  My previous employer made machined parts for the oil and gas industry and had one major client.

            A major issue in central Canada is the housing situation in Ontario in their largest city which is Toronto. Toronto and its adjacent areas such as Mississauga are part of what is known as the GTA.  The prices of houses here extremely high due do the population.  The mayor of Toronto and some members of their provincial government are concerned about a possible housing correction as they believe many people will not be able to afford their homes. Our interest rates are extremely low right now.  When they start to rise, the will mean higher mortgage payments eventually for the people.

           The other major city in Canada with similar high priced homes is Vancouver.  Vancouver is located in British Columbia. 

          So on May 2, I sold a put option in TD with a May 26, 2017 expiration day.  I collected a premium of $41.05 after commissions.

    Summary:

    Strike Price: $62.50
    Total Premium Received : $41.05
    Days to Expiration: 24
    Current Annual Dividend = $2.40
     Option Assignment Fee = $24.95

    Scenario #1 :  Option not assigned

    Total Return = $41.05 / (1*100*$62.50)
                         = .0066
                         = 0.66%

    The total return for 24 days is 0.66%.  The annualized return is 9.99%.  For comparison, my interest savings accounts pays an annual interest of 0.80%.

    Scenario #2:  Option is Assigned 

    Adjusted Cost Base  per share= [1*100*$62.50- $41.05 +$24.95] / 100
                                                    = $62.34


    Yield on Cost = $2.40/$62.34*100 %
                           = 3.850%

     What would the yield be if shares purchased directly at $62.50 using a limit order?

    Commission = $4.95

    ACB/per share = [1*100*$62.50+$4.95 ] / 100
                             = $62.55

    Yield on Cost = ($2.40/ $62.55) * 100%
                           = 3.837%

    Disclosure:  Long 100 shares of TD.TO in my margin account.


    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.


    Sunday, April 30, 2017

    Portfolio Update - April 2017

           The month of April is now behind us. The price per barrel of crude oil is currently trading below $50.  The oil patch in Western Canada has picked up some, but no where close to it was prior to September 2014.  In Sept 2014, the price of oil was around $95 per barrel for a barrel of WTI Crude Oil.  With the price hovering around $50.00 per barrel, the energy stocks are are trading low and some are struggling to be profitable.

            Last month, I wrote about selling puts in Home Capital Group (HCG.TO) at a strike price of $25.00. I bought to close the 2 put option contracts to reduce my losses. It ended up with a loss of around $355 dollars.

           Was this my last stake in Home Capital Group? I am afraid not.  I got my tax refund back and put the refund in my TFSA.  So with approximately $1200 in my TFSA, I bought 65 shares of HCG.TO at $18.00.  The stock rose a bit and I tried to sell, but the stop limit order was triggered but the stock did not rise up to the limit price I wanted to sell.  The day ended and I still owned my shares.  Prior to the open of the markets the next day,  HCG.TO announced an intent to have a $2 billion line of credit with an interest of approximately 15%.  See, HCG.TO is in the mortgage business.  So people deposit money in saving accounts and interest is paid to these savers.  HCG.TO then lends this money out by writing mortgages at a higher interest rate. Savers have been pulling there money out at record levels in the past month. This company is being investigated by the Ontario Securties commission, fired there new CEO,  and had directors resign.  The stock closed Wednesday at $5.99 per share.

            Back to my postion at $18.00 per share.  When I woke up the next day the stock was trading at $8.00 per share. I set a limit order at $7.00 to sell.  I changed my order to a market order when it was trading at $7.30 per share. As we all know market orders get filled right away.  This did not happen. So I cancelled the market order and made a new one. Still nothing happened.  Then went to Yahoo Finance and typed in the ticker symbol, which said the trading of the stock was halted.

         When the trading resumed of HCG.TO, the sell order was filled at $7.28 but then apparently a buy for 65 shares was executed.  I then placed an order to buy 25 more shares of Dream REIT in my TFSA.  After this order for $D.UN.TO  was filled, I noticed my cash balance in my TFSA was negative by approximately $500.00.  This fiasco of HCG.TO did not show up in my trading confirmations or account summary.  My brokerage Questrade said it seems that order for HCG.TO went through when it was not suppose to go through.  As of April 30, they never got back to me yet.  

          The 25 new shares of D.UN.TO was filled at $19.45 for a total of $491.29 including commissions. D.UN.TO currently pays an annual distribution of $1.50 per unit. This purchase adds
    $37.50 to my annual dividend income.

         I wrote previously about wring 2 cover call contracts on Rogers Communications Class B shares (RCB.B.TO)  with a strike price of  $60.00 per share.  I thought my position was safe as RCI.B never traded above $60.  Then earnings was announced on April 18. They stock has risen in value, and I did not want the covered calls to get assigned. I bought to close my covered calls for a loss. 

         On a positive note, my short put in TD.TO expired worthless.  The strike price of this put was $64.00.  I am own 100 shares of TD.TO.


    Shares Acquired Through DRIP


    3 Unit of D.UN.TO @ $20.0035 for a total cost of $60.01 (Margin Account)

    1 units  of CUF.UN @ $14.6435 for a total cost of $14.64 (TFSA)

    Please note, that the DRIPs inside my margin account and TFSA are synthetic drips which indicate the distribution or dividend must be enough to purchase whole shares. 

    I received the dividend payment of my shares of Bank of Nova Scotia (BNS.TO) with the transfer agent on April 26. It takes a few businesses to show the price of the shares and the amount of new shares.  As of the time of this writing, I do not know the price of reinvestment and the amount of new shares.

    As of April 30, the value of the portfolio is $104236.43 . This is a 1.186%  increase over last month's total.  The spreadsheet in the investment tab above has been updated.

     Disclosure:   Long RCI.B, TD.TO, BNS.TO, D.UN.TO

    Please Note:  All stocks are from the Toronto Stock Exchange.

    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.