Today I sold a put option in RCI.B with a June 19, 2015 expiration date. The strike price is $42.00 and expiration is in 18 days.
Premium : $0.27*100-$10.95 = $16.05
Days to expiration : 18
Scenario #1: Option not assigned
Return = $16.05/$4200
Annualized Return = $16.05/$4200*(1/18)*365
When selling options, the option seller gets to keep the premium regardless if stock goes up, down or sideways.
Scenario #2: Option Assigned
Option Assignment Fee = $24.95
Adjusted Cost Base = 4200-premium received+option assignment fee
= $4200 - $16.05 + $24.95
This is higher than strike price a bit. Why would I do that? Why wouldn't I just put in a limit order at $42.00 a share for 100 shares? I entered in $0.25 limit price to sell the option apparently by accident. As soon as clicked sell and within 3 seconds the option was filled at $0.27. I didn't have time to modify the order. I will pay even more attention before I click "send order"
Disclosure: Long RCI.B
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.