Saturday, September 11, 2021

Recent Option Trade

As the stock market keeps booming along, investors can sometimes feel disappointed when looking for a yield that they feel comfortable to invest.  When the price of the stock goes up, this results in a yield going lower these two things are inversely correlated.

This past summer we have some the hottest temperatures on average since records were kept.  Western Canada has experienced a heat dome, which is the first time I seen this weather event happen in Canada.  A heat dome is a prolonged heat wave in which the temperatures at night remain very hot instead of going lower to a reasonable comfortable temperature.

The International Panel on Climate Change (IPCC) have come out with a report this past summer that climate change has been mostly caused by human activity.  In fact, the IPCC said this is "Code Red" for humanity.

We have seen more and more drastic weather events all around the world.

Can an investor take advantage of this major problem of climate change?

Recent Trade

On September 10, I sold 1  Oct15 2021 $28 NFI.TO put option at $0.35.  The net premium collected after commissions is $24.05.  The days to expiration (at time of trade) is 35.

I make money whether the stock goes up, down or sideways.

Scenario 1 :  Option Not Assigned

The return for 35 days if the stock remains above $28.00 is 0.859% (24.05/2800*100).  A 0.859% for just 35 days.  The annualized return (0.859/35*365) is 8.96%.  This annualized return (or yield) is significantly higher than the 1.25% interest for my current high interest savings account.

Actually, my return is actually higher.  My brokerage, Questrade, has a 30% margin requirement for New Flyer Group stock.  Therefore my return is actually 2.86% (24.05/(2800*.30)) for 35 days, or 29.9% annualized.  

Scenario 2 :  Option Assigned

If the price of the stock falls below $28.00 before or at expiration, I am obligated to be "put" 100 shares.  In fact, the option will be assigned at expiration if the stock is trading at any price below the strike price .  My brokerage as an option assignment/exercise fee of $24.95.

If the option is assigned my adjusted cost basis is as follows:
               Purchase price = Strike price*100 shares*# of contracts - net                                          premium received + option assignement fee
                                      = $2800-$24.05+$24.95
                                      = $2800.90

NFI Group currently pays a dividend of $0.85 per share annually.  Therefore the yield on cost would be 3.03%.


New Flyer Group was trading at $29.49 per share at the time of the trade.  If the option is assigned, I will end of buying the shares at a 5.02% discount from $29.49.

Obviously, I would be better to get a higher premium, but I took what the market was given.  If I was with Interactive Brokers, there is no option assignment fee and option pricing is a lot lower.  If I was with one of the big 5 banks, the option assignment fee would be over $40.00.  

I took the premium collected and followed my pay myself first model I am currently have in placed.  


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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