Wednesday, July 20, 2016

Option Trade

     July 15 was option expiration day for 2 of options that I had on.  One was a short put in Potash Corporation with a $21 strike price.  The second option was a covered call in Royal Bank with a strike price of $80.  The short put in Potash Corporation expired worthless. The covered call option in Royal Bank was assigned.

     As I believe Royal Bank is a well run company, I sold a put option with a $79.00 strike price and expiration date of July 29, 2016.  I collected a premium of $44.05 after commissions.  The duration of this trade is 11 days.

Summary of New Trade

Strike Price:  $79.00
Premium collected after commissions:  $44.05
Days to expiration :  11
Option Assignment Fee : $24.95

Scenario #1  -  Option not assigned 

Return  for 11 days =  $44.05 / $7900
                                = 0.558% 

This return of 0.558% is for ONLY 11 days.  Currently, the interest rate on my high interest savings account is 0.80% per year. 

Annualized Return:  ($44.05 / $7900) *365/11
                               = 18.50%

Scenario #2:   Option Assignment

Adjusted Cost Basis = $7900  - $44.05 +$24.95
                                    = $7880. 90

Current Annual Dividend = $3.24 per share

Yield = $3.24/(7880.90/100)
          = 4.111%

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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