Option Assignment

     

    I recently wrote about selling 2 put contracts in WestJet Airlines (WJA.TO) at a strike price $23 and expiration date of April 20, 2018.

    Fast forward to Monday April 23, I was "put" 200 shares of WJA.TO as the share price was below $23 at the close on April 20th.  Puts can be exercised by the buyer anytime prior to expiration.  For example, if WJA.TO dropped to $21 per share then the buyer will likely notify there broker than they want to exercise (sell to close) their put contracts. Exercising a option involves notifying your broker and not the traditional way by clicking "Sell"".  At expiration, if your short option is $0.01 in the money then it is suppose to be automatically assigned.

  So my yield on cost is 2.491% with an adjusted cost base of $22.4845 per share. When short put options are assigned, the adjusted cost base for tax purposes consist of the following:

   ACB = (# of put contracts*100 shares*strike price) - (net premium received )+ (option assignment fee)

  This option assignment adds $112.00 to my annual dividend income.

   I plan to write covered calls on WJA.TO as their dividend has not been increase in the last few years.  Airline stocks are very cyclical and volatile due to the type of costs such as fuel and weather events.

Disclosure:  Long WJA.TO

Photo Credit: www.westjet.com

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.