Thursday, December 24, 2015

New Covered Call

  I recently wrote about my covered call in QSR.TO , which is the ticker symbol for Restaurant Brands International.  Restaurant Brands International is the company that owns both Burger King and Tim Hortons.  The latest post on this covered call can be read here.

  This option had an expiration date of Dec 18, 2015.  The option did not get assigned as it expired. So what did I decide to do?  I decided to write another covered call to collect more option premium.  On Dec 23, I sold a covered call in QSR.TO with a January 15 2016 expiration date and $52.00 strike price.

 Summary:

Premium Received = $75.00-$10.95
                               = $64.05

Days to Expiration: 23

Cost of Stock = $5200

ROI = $64.05 / $5200
ROI = 1.232 %

This 1.232% return is for 23 days.  Most banks are paying under 1% annually on their savings accounts.

Annualized ROI = $64.05 / $5200 *365/23
                            = 19.55%

   A covered call is an excellent way to make more income on a stock that you already own.  This strategy is not for everyone, as some people like to buy and hold to collect dividend income.  My initial purchase price was around $47.00 per share.

Long QSR.TO

DISCLAIMER
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.

4 comments:

  1. I really enjoy these covered call options updates. You are really whetting my appetite to jump on board the options train. You already own the stock, why not make additional premium. You bought at $47 so if it gets called away at $52 you profit there plus premium. I like how you break down the trade in your summary. Very easy to read/understand. Do you typically sell short term options?

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    Replies
    1. DivHut,

      Thanks for dropping by. It is difficult to sell short term options up here in Canada, as the level of interest is very low compared to the US.

      If an investor has an account with interactive brokers, the commissions are near $1.00 and they do not have a assignment/exercise fee like I have. Some of the other brokers in Canada have higher assignment/exercise fees than I have.

      Interactive brokers, at least up here in Canada, an investor needs $10000 dollars to open an account. IB have cheap commissions on options and there is no assignment fee that I know of.

      The downside to covered call is that the stock could go way up and your gains are topped. If the option is $0.01 in the money then it will be assigned at expiration. The same goes for selling naked puts.

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  2. IP, you should really consider opening an Interactive Brokers account for your option trades. They charge about between $1 & $2 for option trades...keep more of your $! Given how horrible the spreads are on the MX, it's a wonder you get much premium at all after factoring in spreads + commissions

    ReplyDelete
    Replies
    1. Daniel Austin,

      Interactive brokers require $10000 to open an account. I do not have that right now, and do not want to transfer all my current holdings over there right now.

      It is difficult to sell options here in Canada that is for sure. I am surprise how low TD option premiums are. Seems like an investor has to sell in the money options for calls or puts to make any have decent premium. First world problems though, as it could be worse.

      Delete