Monday, June 1, 2015

Option Trade

I currently own 100 shares of Rogers Communications Class B  (RCI.B) at $43.69 a share in my margin account.  I have owned this stock since last summer.

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
             = 0.38%

Annualized Return = $16.05/$4200*(1/18)*365
                                 = 7.749%

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
                                 = $4208.90

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"  the second time than I normally would. This is the first time I did this that I can recall as I am usually very careful when putting in orders. In my brokerage, you click on buy or sell and submit order by clicking on "send order".  Then an order confirmation comes up and you get to review your order and two options are "send order" or "cancel".

If this option gets assigned it will reduce my overall cost basis, so my mistake will still benefit me a lot.  

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.

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