Before I talk about the trade, I want to thank DSF for the mention in his recent video that you can watch by clicking on this link recent video about dividend investing .
This past month I was paying attention to some issues that might affect the Canadian banks. Alberta, the economic engine of Canada, is a province in western Canada which has lots of oil in the ground still, even after years of exploration. With the decline in world oil prices over the past several months the oil industry has slowed down and ten of thousands of layoffs. These layoffs have been at corporate offices, drilling services, oilfield service companies and any other company that services the energy sector.
Also during the month, was anticipation of the provincial budget of the government of Alberta. The premier of Alberta, has warned the budget will be drastic and might need a mandate from the people of Alberta to implement it. During the time Jim Prentice has been Premier of Alberta, the price of oil started at around $92 a barrel in mid September 2014. The price of oil has since dropped to about $45 a barrel. Industry is saying that the price of oil could remain low for 2 to 3 years. In the budget released on the 26th of March, there were lots of hikes in user fees, more expensive fines, and the people who make more where asked to pay a little more. I believe this will affect housing, along with the current oil prices, to some degree. The government of Alberta has increase the price of liquor, cigarettes and gasoline.
So What Did I Decide To Do?
I could of decided to invest directly in the energy companies to buy them at a lower price. But instead I decided to go a safer route with purchasing a Canadian bank. With a lot of energy companies having loans with the banks, this will effect the price of the stocks for Canadian Banks. I did not purchase a bank directly instead use call options.
On Mar 27, 2015 I bought 2 contracts for May 15, 2015 TD Call with a $54.00 strike price for a premium of $181.95 including commissions. As I purchased the contracts, I pay the premium for having the right but not the obligation to purchase 200 shares of TD at the strike price prior to or on expiration day. This trade will be in my TFSA.
Disclosure: Long TD (margin account)
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.
individual should do their due diligence to make their own financial
decisions based on their financial situation and tolerance for risk.