Thursday, January 5, 2017

First Option Trade of 2017

      I currently own 200 shares of Potash Corporation of Saskatchewan (ticker symbol POT), which were bought on the Toronto Stock Exchange.  POT also trades on the NYSE.  My covered call on POT expired worthless on Dec 30.  So on Jan 3, I sold 2 covered call contracts in POT with a $25.00 strike price and expiration day of January 20.  I collected a net premium of $40.05 after commissions.

      POT is currently in the process of merging its company and Agrium into one of the largest potash supplies in the world.  The shareholders of each company recently voted in favor of the merger.  There is a lot of hurdles still overcome in order for this deal to go through.


Strike Price : $25.00
# of contracts : 2
Option Assignment Fee:  $24.95
Premium received after commissions: $40.05
# of days until expiration : 17
Adjust Cost Base: $4245.85

Scenario # 1:  Option Not Assigned

Return = $40.05 /( $5000)
            = 0.801%

This return of 0.801% is for 17 days.  Currently, interest rate on my high interest savings accounts is 0.80% year. 

Annualized Return = ($40.05 / $5200 )* (365/17)
                                =  17.20%

Scenario #2 : Option is Assigned

Total Return = (Profit - Adjusted Cost Basis) / Adjusted Cost Basis
                      = ($5000+$40.05 - $24.95 - $4245.85 ) / $4245.85
                      = 18.12%

Disclosure: Long POT

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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