Put Option for Rogers Communications

I have written a post recently, on selling put options which you can read about here

Recently, I placed a limit order of $0.69 for a put option on Roger's Communications.   This was  a "sell to open" a put option, which means if the order goes through I am paid a premium.  Since 1 contract represents 100 shares, I was paid $58.05 after commissions. I am paid a premium as I make a  "promise" that I will buy 100 shares of RCI.B at the strike price of $44.00 if the stock price falls below $44.00 and it is assigned.

3 possible outcomes :

            (1) If the stock goes up,  I made $58.05 without putting up any money.

            (2) If the stock goes sideways and the stock doesn't fall far enough, I made $58.05.

           (3) If the stock goes down below the strike price of $44.00 and is assigned, then my cost basis is lowered.
                 

What is my adjusted cost base if put is assigned?

ACB= # of contracts*100 shares*strike price - [option premium - option premium commission]   +commission for option being assigned.
                                  = 1*100*$44.00 -[$69.00 -$10.95]+$24.95
                                  =$4366.90

RCI.B currently pays an annual dividend of $1.83/share.   YoC=1.83/43.6690=4.191%

How is this different if I bought the shares outright without an option?
     Cost of 100 shares  =$4400
     Commission = $4.95
     ACB/share =  $44.05
     YoC=   1.83/44.05= 4.154%

The yield on cost is greater where a put was sold and assigned over just buying the stock outright. This means my money is now working harder for me. Selling a put option allows me to get paid while I am waiting for the price of a stock to go down to a point that I am comfortable buying it.  The other option is to but in a limit order to buy the stock at $44.00 and wait.

EDIT :  In the section about if I bought shares outright, the commission is $4.95 instead of $9.95. My numbers above have been corrected.

NOTE:  Selling puts is deemed to be risky, as the stock can go to zero or decrease in value really quick.

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

One Solution to a Rising Market

The stock market seems to be rising and rising. As an investor, it is more difficult today to find stocks that are deemed undervalued. How can an investor make money in this rising market? If a stock that you are interested is trading higher than what you willing to pay, an investor can still make money on this by using options.

An investor can make income by selling a put option.  A buyer of a put pays a premium for the right, but not the obligation, to sell 100 shares at the strike price before or on the option expiration date. The seller of a put gets paid the option premium up front for the promise, or obligation, to buy 100 shares at the strike price before or on expiration date.

So lets say, shares of fictional company XYZ is currently trading at $46.00, and you are willing to buy 100 shares at $45.00 . You look at the option table for that stock for a $45.00 strike price. Since you are selling a put, you look at the bid price. If you do a market order, this is the premium you will receive. So, in this case you would receive $100 in premium directly into your account.  If the stock price goes up, the seller keeps the premium. If the stock price goes sideways but stays above strike price, the put seller keeps the premium. If the stock price falls, the put seller is PUT the 100 shares of XYZ at the strike price plus still has the premium which lowers his or her cost basis.

3 Scenarios When selling a PUT OPTION

Note : Commissions were not included above for simplicity.

The risk of selling puts is that the stock can go to zero.  The maximum profit when selling a put is the premium minus the commission. Selling puts allows an investor to be paided why trying to buy a stock at a cheaper price. If the investor is PUT the stock, then they become owners of the stock and are now LONG the stock.

An individual must ask for the option level permission from there broker in order to be able to sell puts. So, this past week I was granted permission (Option level 4 ) from my broker to sell puts within 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

Some Youtubes Videos

I went on YouTube tonight, to listen to some music. One of the videos that popped up was a song about the stock market. Click here to go the the video. This channel  apparently has a few videos related to finance. There is one on money management.  A third video is about The Way to Wealth. 

As people go through there lives, the light bulb comes on for some people. They realize that they need to make better financial choices in their lives. The money you put in a savings account pays very little interest these days. With the rates so low these days, the saver is losing moving due to inflation.

Some options for people are to get a second job, invest in the markets or real estate, or start a small business. With a second job, this could be used to help pay expenses or pay down bad debt at a quicker pace. When investing, people have there money work for them though the companies they are partial owners in, which means they are shareholders.  When a company like McDonald's make a profit, they may share some of those profits with shareholders via dividends.  McDonald's pays a dividend and has done for year.  So after the purchase, a person will get a quarterly check from McDonald's as dividends in proportion to the amount of shares they own on the dividend record date.  This income comes in with zero effort, besides the investment, on a quarterly basis for most companies.

An investor can also purchase real estate that he or she can rent out. Then rental income should be large enough to pay the mortgage payment on the property, insurance, property taxes and other expenses related to running the property.

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

Recent Sale

www.airlinesanddestinations.com

During the past week, Chorus Aviation Inc. announced its first quarter earnings for 2014.  Some of the highlights are as follows (www.newswire.ca) .

• EBITDA of $47.3 million, up 8.2 %
• EBITDA margin of 11.4%
• Operating income of $31.2 million, up 50.0%
• Adjusted net income of $20.3 million, up to 38.0%
• Adjusted  net income per share of $0.17 per basic share.
• $60.0 million early, partial repayment of 9.5 % maturing convertible debentures.

Chorus Aviation Inc also announced that they will be changing their dividend from a quarterly dividend to a monthly dividend in the 3rd quarter of 2014.

The first-quarter net income is down from  a year ago by 39.1 %.

Chorus Aviation Inc (The parent company of Jazz Air) has one major customer and that is Air Canada.  By law, Air Canada has to fly to areas even if it is not profitable. Usually these smaller airports are serviced by Air Canada Jazz as their planes are smaller.

I have decided to sell my shares in Chorus Aviation last week as I believe my entry point at $3.68, which you can read about here,  is higher than I would like. Airlines have to deal with rising fuel costs and inflation causing their customers to reduce their travel.  The sale of 1000 shares happened over two days so I had to pay commissions for each day.

Cost of Shares including commissions  : $3689.95
Proceeds of Sale including commissions: $3800.00
 Net Profit :  $110.05
Return of Investment: Net Profit / $3680.00 = 2.99%

The sell order for my shares was a limit order for all 1000 shares at once.  Since the complete sale happened over 2 days my commission for selling was $10.00 instead of $9.95. My broker has $0.01 per share cost with a minimum $4.95 commission and max $9.95 commission. The order went through as 500 shares being sold on each day so I paid $5.00 commission each day.

I will update my portfolio tab spread sheet in early June.


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

Option Trade

In a recent trade, I bought a put option on May 12, 2014.

The put option is 2 PUT .RY  5/17/14 $74.00 for total cost of $131.95 after commission.  When an
individual BUYS an option, the individual has to pay the premium and its commissions up front. An option buyer has the right, but not the obligation,  to sell 100 shares at the strike price before or on the expiration date. Since I bought to open 2 contracts, that would mean 200 shares. I paid $120.00 premium plus a commission.

On May 15, 2014, I sold to close this option at $0.75 per contract for a total of $150.00 excluding commission.

Purchase of Put :  $120.00 = 2*100*$0.60
Commission on Purchase : $11.95
Sale of Put : $150.00  = 2*100*$0.75
Commission on Sale : $11.95

Profit = $6.10

Return on Investment = [2*100*( .75-.60) - 23.90] / (2*100*0.60)]
                                    =5.08%

As I was getting close to the expiration day of May 17,2014,  I took a small return to reduce the chance of losing money then trying to get a bigger return and losing $131.95.
 
There are different reasons to buy a put option.  If you expect the market to go down and you want to profit from it, you can either short the stock or buy a put option. Short selling  has unlimited risk as a stock price can keep going up and up. When an investor/trader buys a put option, they only risk
what they paid in total for the put option. Therefore, buying a put option reduces the risk.

EDIT:  "As I was getting close to the expiration day of May 17,2014 ..." was worded wrong, as it reads correctly now.

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

Dividend Income - April 2014

 The month of April 2014 is another month of increasing dividend income. 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.

Non-registered Account

• Killam Properties (KMP)  - $5.75
• Shaw Communications (SJR.B)    - $18.33
• Just Energy (JE) - $47.88
• Enerplus (ERF)  -$ 45.54
• Bell Canada (BCE) - $  61.75
• Bank Of Nova Scotia (BNS) -  $7.30

TFSA

• Killam Properties (KMP) - $  14.00
• Dundee REIT   (D.UN)  - $ 16.61
• Cominar REIT (C.UN) - $5.28
• Boston Pizza  Royalties Fund (BPF.UN)   - $23.87

Total = $246.31

This total represents a 5.29% increase from 3 months ago and 7.80%  year over year.  This is a small increase, but an increase I will definitely take. 

I also received another distribution payment of $56.00 for my swing trade in Dundee REIT in my non-registered account. This is not listed above since it is a trade, so I keep the money in the account and do not pay myself first with this payment. I have received $539.47 in distributions so far on this trade.

I will update my dividend income tab with the new amount.

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

Portfolio Update - April 2014

It is time to update my portfolio. I made a sale and a purchase this month.  I sold my 100 shares of Boston Pizza Royalties Income Fund in my margin account, which you can read about here.  The ROI was very small on this sale, which it was used for a position trade.  I also made a purchase this month of Chorus Aviation, which you can read about here.

The following stocks were DRIPPED.
 - Enerplus    1 shares @$24.26
 - Bank of Nova Scotia 0.111555 shares@$65.4387

I decided to turn the DRIP off for Enerplus. As the stock is trading about my cost basis by $1.50-$2.00 currently, I felt I can use the dividend income more efficiently elsewhere.  The DRIP has been turned on for Killam Properties (280 shares) in my TFSA as the stock is trading below my purchase price. Killam Properties is dealing with not able to raise rents that much to combat rising natural gas prices. Killam Properties has most of its properties in Atlantic Canada. The market is saturated with apartments right now. When the federal ship building starts in Halifax within the next couple of years, there should be an influx of families moving into the area.

The current value of my portfolio is $66705.42. This represents an increase of 5.21 percent over last month. I  updated my portfolio tab at the top of the blog.

Disclosure:  Long all mention securities except Chorus Aviation Inc., which might not be held for the long term.

Photo Credit:  www.airlinesanddestinations.com

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

Recent Purchase

On April 30th, I made a purchase of Chorus Aviation Inc. in my margin account. This company was formed in 2010, when Jazz Air Income Fund changed its corporate structure for a income fund to a corporation.  On October 31, 2006, the federal finance minister announced changes to the income trust model. This change meant that income trust will be taxed different from what they were currently taxed on. The income trusts in Canada had to 2011 to change to a corporation or keep their current setup with higher taxes.

Chorus Aviation Inc. is a holding company that owns Jazz Aviation LP. Jazz Aviation LP has a history going back to the 1930's. This company has a purchase agreement with Air Canada, which is Canada's major carrier. Jazz Aviation LP provides service to smaller markets and routes on a daily basis on behalf of Air Canada.  Jazz Aviation LP also provides services to  major markets in off peak times.

I purchased 1000 shares (CHR.B) at $3.68 on the Toronto Stock Exchange for a total cost o 3689.95 including commissions. The current annual dividend rate is $0.45/ share.  The yield on this investment is 12.2% providing an annual dividend income of $450.00.

"Chorus Aviation Inc. ("Chorus") (TSX: CHR.B CHR.A CHR.DB) today announced that the Toronto Stock Exchange (the "TSX") has accepted its notice to make a normal course issuer bid ("NCIB") to purchase for cancellation up to a maximum of 12,168,157 of its Class A Variable Voting shares and/or Class B Voting shares (collectively, the "Shares"), representing 10% of the public float of the Shares." -Yahoo Finance, Mar 27, 2014

As you read above, Chorus Aviation Inc. is planning on buying back 10% of its shares.

I will update my portfolio in a couple of days, since it is the start of a new month.

Disclosure: this might not be a long term hold.

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