Option Trade - Royal Bank

      
      I am looking to establish another position with Royal Bank. The stock was currently trading around $89.00 a share after the recently earnings release from Bank of Nova Scotia. The closing price on November 28 was $89.27.

    On Nov 28, I sold 1 put contract on RY with a strike price of $86.00 and expiration date of December 16.  I collected a total premium of  $25.05 after commissions.

Summary:

Strike Price: $86.00
Total Premium Received : $25.05
Days to Expiration: 18
Current Annual Dividend = $3.32
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $25.05 / (1*100*$86.00)
                     = .0029
                     = 0.29%

The total return for 18 days is 0.29%.  The annualized return is 6.08%.  My high interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*86.00 - $25.05 +$24.95] / 100
                                                = $86.00

This would represent a discount of 3.66 % on the closing price of $89.27 on November 28.

Yield on Cost = $3.32 /$86 *100 %
                       = 3.860%

 What would the yield be if shares purchased directly at $86?

Commission = $4.95

ACB/per share = [1*100*$86.00 +$4.95 ] / 100
                         = $86.04

Yield on Cost = ($3.32 / $86.04) * 100%
                       = 3.859 %

The yield on cost appears to be the same almost. If the premium received was higher, then the yield on cost for the option assignment would be greater as the adjusted cost basis would be a lower dollar figure.

Please Note:  As of the time of this writing, Royal Bank was fallen in price after releasing earnings but still above $86.00.

Disclosure:  I do not own any shares of RY in any accounts as of this writing.

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.