Saturday, December 10, 2016

Option Trade

    An investor can receive cash flow from the markets in 3 ways which are option premiums, dividends and interest.  REITs, funds, and ETFs pay distributions that can be comprised of  a combination of interest, dividends, and return of capital.  Return of capital is money returned to the investor tax-free until the security is sold.  Return of capital reduces the adjusted cost basis, which therefore increases your gains or decreases your losses.

    I own 900 shares of IAMGOLD (IMG), that were purchased on the Toronto Stock Exchange. Currently, my adjusted cost base on my position is $4691.80 or $5.21/share.  The stock has traded between $4.26 and $5.89 over the past 3 months, which can be seen in the chart.

3 Month Chart

       IMG does not pay a dividend. The price of gold has been volatile as of late, which is likely due to the election of Donald Trump and what investors think of possible interest rate hike in the US.  I am looking to unload this position, but the price does not seem to go much above my adjusted cost base per share.

        I perused the option table for IMG, and decided to sell covered calls to collect some income. But, as per the chart above, IMG has been trading closer to $5 and under per share for the past 3 months.  So, I decided to sell cover calls with a strike price of $5 instead of $6.  The expiration date is December 16, 2016. 


Option premium received minus commissions : $242.05
Days to expiration : 8
Option Assignment Fee :  $24.95
Adjusted Cost Base = $4691.80

Scenario #1: Option not assigned

Return = Option premium received /
            = $242.05 / $4500
            = 5.38 %

This return of 5.38 % is the return for only 8 days.  The interest rate on my high interest savings account is currently 0.80% per year, which is actually laughable.

Annualized return = ($242.05/$4500) *(365/8)
                               = 245.41%

Scenario #2:  Option is assigned

Return=   Profit/ Intial cost
           = { (9*100*$5.00 + $242.05 - $24.95) - $4691.80} / $4691.80
           = 0.539%

If the option is assigned, the return is still positive.

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. Gold stocks have been doing great this year, despite the drop since the summer. I should sell more covered calls too since I'm with IB now. :) By the way, I think the link to your blog on your twitter profile leads to the wrong version of your site. It currently points to
    But that leads to a security warning page. points to your actual blog, for me at least.

    1. Liquid,

      Thanks for dropping by and notifying me about the twitter issue. I have another covered call on in Potash for a $25 dollar strike price that is set to expire next week. I never thought POT will go about $25 dollars at this time.