Friday, July 17, 2015

Recent Trade - Update

    I recently wrote about a trade involving call options in TD, which you can read about here. Well the following day,  the Bank of Canada decided they had to take action as it was a scheduled day for the announcement on what it will decide to do with the overnight interest rate.  The rate can be lowered, stay the same or be increased.  The Bank of Canada cut the overnight rate by 0.25% on July 15, which means the current rate is 0.50%.  This is the second time in 2015, that the Bank of Canada has cut the interest rate.

    I purchased the 3 call options in TD on July 14. As a result of the rate cut, TD bank reduced its rate by 0.10%.  This help to lift the stock price higher, as the reduction in the rate means its cheaper to borrow money which means more people or businesses will likely borrow more money and therefore the banks make more money. On July 16, the upward movement in the stock price meant the price of the option went up. My limit order was filled on July 16 at $1.70 per contract.


Initial cost:  $1.20*3contracts*100shares/contract + $12.95
                   = $372.95

Proceeds of Sale: $1.70*3contracts*100shares/contract - $12.95
                            = $497.05

Profit = $497.05-$372.95
           = $124.10

Total Return = $124.10/$372.95*100%
                      = 33.28%

Click to Enlarge

So I made a 33.28% return in less than 48 hours.

Disclosure: own 100 shares of TD
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.


  1. Neat. Thats not a bad return at all considering that you held it for less than 48 hrs.


    1. Btw, when you buy options - do you buy ITM or OTM?

    2. R2R,

      Thanks for dropping by. It was nice to have that high of return in a short time, that is for sure.

      When buying options, it will depend on things whether I buy them ITM or OTM. For the TD option I just did, I put in a limit order to buy the $52 strike price at a lower premium that what it was trading for. It was still ITM. When the option is ITM, the price of the option increases more rapidly when the stock moves more in my favor. So for this particular option trade, my plan was to get in and get out quick.

      Just from my experience when I buy OTM, the option doesn't increase as fast especially in the last month of the expiration cycle which is due to time decay. Mostly when I buy OTM options, it is usually trying to buy it really cheap and hope the stock will move in my favor by a lot.

      Due to the price of commissions for my brokerage, the option price has to increase a lot to make the trade worth while. So the situation depends on my cashflow situation and how much premium I am willing to buy for.

  2. Not a bad day at the office haha Are you kidding me, great return for 48 hours. Congrats! I am newer to the site, so just out of curiosity, are options your preferred method of trading or is it a periodic "Why not" investment for you? I haven't dabbled into options yet and am instead focused on building my dividend growth portfolio.

    Great job. Keep up the great work!

    Bert, One of the Dividend Diplomats

    1. Bert,

      Thanks for dropping by. I trade options periodiclly. Options allows your reduce your risk by allowing you control , assuming one contract, 100 shares of store for a very low amount. When buy put options or call options the stock has to move in your favor. So you have 1 out 3 ways to make money.

      In this case, I am low money in my account so buying an option allows me to try to make money from the market without using a lot of capital.

      If you sell options, you can make money weither the market goes up, down or sideways. When I sell a put, I am paid a premium. So if the stock price increases or go sideways I get to keep the premium. If the stock goes down, I get to buy the stock at a cheaper price. For the latter sentence, if I sell a $50.00 put in company "ABC" , I will be paid $1.00 premium which equates to $100. So when the option is assigned, my cost basis is reduced and will be ($5000-$100+option assignment fee+option commission). Some brokers do not have the option assignment fee, but mine does.

      Selling options can reduce your cost basis either my selling put options or call options. For selling put options, I would only sell them for stocks I would want to own. For selling call options, for me at this stage it would be only covered calls.

      For me, when to trade options or stocks comes down to the amount of money I have available. My main goal though is to build the portfolio for dividend income.

  3. If you want to trade more options, you should look into opening up with Interactive Brokers (IB) account. That CALL trade would have cost you $9.00 at IB vs $25.90 at your TDW. There is a $10 monthly fee with IB, but it is waived if you generate enough commission for the month.