Friday, January 27, 2017

Option Trade

    With the markets on both sides of the border (US and Canada) marching higher, it is difficult to find stocks trading for cheap. One stock that I have owned in the past was TD Bank (ticker symbol: TD).  My prior position was called away. This stock keeps marching higher and higher, following the trend of the markets over the last while.

      So on January 23, I sold a put option in TD with a February 17, 2017 expiration day.  I collected a premium of $24.05 after commissions.


Strike Price: $65.50
Total Premium Received : $24.05
Days to Expiration: 26
Current Annual Dividend = $2.20
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $24.05 / (1*100*$65.50)
                     = .0037
                     = 0.37%

The total return for 26 days is 0.37%.  The annualized return is 5.154%.  My high interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*65.50- $24.05 +$24.95] / 100
                                                = $65.51

Yield on Cost = $2.20/$65.51 *100 %
                       = 3.358%

 What would the yield be if shares purchased directly at $65.50 using a limit order?

Commission = $4.95

ACB/per share = [1*100*$65.50+$4.95 ] / 100
                         = $65.55

Yield on Cost = ($2.20/ $65.55) * 100%
                       = 3.356 %

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:  Since January 23, TD has increased in value.

Click to Enlarge

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

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 comment:

  1. Nice analysis here. I think the first option looks more attractive if the second leaves you with a yield if you bought this on market now .