Oct 18, 2015 was option expiration date for the month of October. I wrote recently on the two companies that I recently sold put options on, which you can read about here and here. My put option in Roger's Communications Class B stock with a $42.00 strike price was not assigned.
When I sell a put option in company "A", I am obligated to BUY 100 shares of Company "A" before or at option expiration. The buyer of a put option is the choice to sell 100 shares of Company "A" at the strike price on or before expiration day.
My naked put option was assigned for TD Bank, which has ticker symbol TD on the Toronto Stock Exchange. The premium I received for the put option was $71.05 after commissions. My broker has an option assignment fee of $24.95.
Adjusted Cost Base = 100 shares *strike price - (option premium with commission ) + option assignment fee
= 100*$56.00 - $71.05 + $24.95
= $5553.90
Yield on Cost = annual dividend / ACB =$1.88/55.5390 = 3.385%
As of writing this post, TD trades at $53.67 a share. The option assignment adds $188.00 to my annual dividend income.
TD Bank has grown its dividend at a CAGR 6.5 % over the 5 years between 2008 to 2013. In 2009 and 2010, TD Bank did not increase its dividend due to the financial meltdown and the recession that happened. The other 5 major banks did not raise there dividend during this time as well. TD Bank also increased its dividend in 2014 already. The other Canadian banks have a CAGR of only 3.3% over the same 5 year span.
Disclosure: Long TD
EDIT: Feb 16, 2015 My option premium is now correct above. The premium was $0.82 per contract and not $1.00 per contract. So with commissions the premium including commissions is $71.05.
DISCLAIMER:
I'm long TD too as well as BNS and RY in the Canadian banking space. No options for me though. I keep reading several of the DGI bloggers and their options exploits, mostly for the good, but sometimes bad. The only way I'd get into options is with writing puts on stocks I'm looking to buy or writing covered calls. One day... just not ready or comfortable yet. Thanks for sharing.
ReplyDeleteDivHut,
DeleteI also own BNS directly through the transfer agent. As from the Investment Account tab above, you can see it is a small position. Actually the dividend was paid today on BNS and my shares are set on full DRIP.
I owned RY in the past at around $42-$43 something. I had sold a cover call with a $44 strike price and right before option expiration the stock went up over a dollar and my option was assigned.
Selling covered calls means you have to own the stock before hand. This is the most common way to earn money in option premiums. For a short put, or selling a put, you will also get paid up front. It is best to sell a put on a stock you are willing to own as you said.
Personally, I find trading options is difficult up here in Canada as the option chains don't show as much interest so it might be difficult trying to trade your option to someone. I work during the day, so I can't look to see how the markets are doing each day.