Tuesday, December 27, 2016

Option Trade

     I recently wrote about recent option trades expiring worthless on the most recent expiration date. I got to keep the premium as I was the option seller in all 3 cases.

     So I try to collect more income in the form of option premiums.  I sold a covered call in Potash Corporation of Saskatchewan (POT) with a December 30 expiration date.  I currently own 200 shares of POT, so I attempted to sell 2 contracts. Actually my order went through twice, so I ended up with 4 contracts altogether.  My brokerage charges $9.95 + $1.00 per contract for commissions. So, with this counting as 2 separate orders, the total commission is $23.90. The premium received after commissions is $48.10.  So I contacted my broker and discussed this issue with them and they did not even give me free trades.  With my brokerage and assuming all brokerages, a pop up is suppose to come up saying "You are entering into a short position, do you want to proceed?". Then if you decide to proceed, the order comes up via a pop up to be reviewed and you click to proceed or not. Then the order is sent out into the market. This did not happen.

    After contacting my brokerage, I decided to "buy to cover" to remove the extra 2 contracts from my broker account. When you "buy to cover" an option, the option buyer pays the premium.  So this transaction cost a total of $57.95 after commissions.


   I really need to learn to be more vocal with brokerages over issues like this.  As you can see, I lost money already on this ($48.10-$57.95=  - $9.85) . This is a small amount, but the brokerage software did not work properly.  If the option is not assigned, I will look to continue to sell covered calls at a strike price I am willing to sell at.

POT and Agrium Corporation, are set to merge in the very near future as shareholders of both companies voted  in favor of the merger.  If the merger passes all the hurdles, then a new company will be created. This keeps the stock price of POT slightly higher then my adjusted cost base.

Disclosure: Long POT and currently do not own and have never owned Agrium shares.

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.

No comments:

Post a Comment