Recent Purchase and Option Trade

      

      I recently purchased a major Canadian bank, which you can read about here.  TD bank (Ticker TD) is one of the 5 big banks in Canada. They have banks in Canada and the United States.  TD trades on both the NYSE and the Toronto Stock Exchange.

          After my purchase of 100 shares of TD on February 27,  I wrote a cover call on TD with a strike price of $70.00 Mar 10, 2017 expiration date.  I collected a net premium $29.05 after commissions for this covered call.  The total cost of the purchasing of 100 shares was $6966.95 including commissions.

           I have owned TD in the past, but my 100 shares were "called" away as the call option was assigned.  The stock has risen a lot since that time.

Summary

Cost of purchase = $6966.95
Premium collected = $29.05
Strike Price = $70.00
Days until expiration = 10 days
Option Assigned Fee - $24.95

Scenario  #1:   Option is not Assigned

Return on option:  = ($29.05/$7000)*100%
                             =   0.415%

This return is for 10 days.  The annual interest rate on my high interest savings account is 0.80%. 

Annualized Return  =[ ($29.05/$7000)*(365/10)]*100%
                                = 15.15%

Scenario #2 :  Option Assigned

Profit = Proceeds of Sale + Premium Collected - Option Assignment Fee - Initial Cost
          = 1*100*$70.00+ 29.05 - $24.95 - $6966.95
          = $37.15

Total Return = Profit / Initial Cost
                      = $37.15 / $6966.95
                     = 0.533%

What is the return if we sold $7000.00 through the normal way?  The commission on the sale would be $4.95

 Total Return =[ $7000-$4.95 - $6966.95] / $6966.95
                      = 0.403%

Disclosure:  Long TD

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.