Friday, June 17, 2016

Option Expiration Day - Update

     June 17 was an option expiration day for 2 options that I sold in the past.  When selling an option,  if the option in not "in the money" then the option will expire worthless on expiration day.  When selling options, a premium is paid up front to the seller of the option.
      I recently sold a put option in Telus Communications with a $41.00 strike price with a premium of $45.05 after commissions. With the option expiring worthless, I will look at the option chain and try to sell another put option if the premium that will be received will be adequate.
      A few months ago, I sold a covered call in  Royal Bank with a strike price of $80.00.  I received a premium of $59.05 after commissions.  With a covered call, the option will expire worthless when the price of the stock is below the strike price. With the option expiring worthless, I will look at the option chain for Royal Bank and see if there is a good option premium that can be paid to me.

    Selling options can be risky.   Selling options allows an investor or trader to get paid a premium up front.  This option premium increases your returns besides collect dividends and interest.  When you sell a put option you can hedge yourself by buying a put option.  The goal is pay less in option premium when buying the put option than the premium you receive for selling the put option.  Buying a put option, the buyer has the choice to sell his or her shares at the strike price on or prior to option expiration.  Buying the put option, as mentioned here, is an insurance.

Disclosure:  Long RY

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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