Option Trade - Royal Bank

    From time to time, I like to sell covered calls on stocks.  A covered call involves owning the shares first then selling a call option to be paid a premium up front.  Usually you sell an out of the money call option.  The investor or trader gets paid up front for be obligated to sell 100 shares of stock XYZ at the strike price on or prior to expiration day.
    On Jun 20, I wrote a cover call for Royal Bank with an $80.00 strike price and an expiration date of Jul 15, 2016.  I received a premium of $50.05 after commissions.

Summary:

Scenario #1:  Option Not Assigned

Strike Price : $80.00
Option premium received :  $50.05 after commissions
days to expiration : 25

Return  for 25 days= $50.05/$8000
                               =  0.626%

For 25 days, I am getting a return of 0.626%.  The interest on my high interest savings account is 0.80% per year.  So, I definitely do not mind a return of 0.626% for 25 days.

Return Annualized = 0.626%/25*365
                               = 9.140%


Scenario #2: Option Assigned 

If the option gets assigned, then I get to sell my shares for a greater capital gain as the option premium received is added to the proceeds of sale for calculating taxes.

Disclosure: Long RY

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.

Dividend Increases

    Last week, the Canadian banks reported their earnings for the most recent quarter. The Canadian banks are some of the best banks in the world.  I currently own shares in 4 of these wonderful businesses.

   

 
 On Wednesday, Royal Bank of Canada (ticker symbol : RY) reported their earnings.  Royal Bank announced a dividend increase of $0.02 per quarter. This is the second time in the last 12 months Royal Bank has raised its dividend.  The last time it raised its dividend was for $0.02 per quarter also.  They raised their annual dividend by $0.16 per share which represents a increase of 5.33 % {$0.16/$3.00}. With the low price of oil and lowering of interest rates by the Bank of Canada, I will definitely welcome this raise.

 

  On Friday, Bank of Nova Scotia (ticker symbol: BNS) reported their earnings and announced a dividend increase of $0.02 per quarter  as well.  This is the second time in the last 12 months that Bank of Nova Scotia has raised its dividend as it raised it by $0.02 per share previously. Therefore, they raised their annual dividend by $0.16 per share which represents a 6.06% increase {$0.16/$2.64}.  Bank of Nova Scotia also owns Tangerine Bank, which is an online bank where individuals can bank and not pay any fees.

    I own shares of Bank of Nova Scotia directly though its transfer agent. I do not have to pay commissions to acquire more shares as I just mail in a check.  The disadvantage of this way of purchasing stocks, is that I have no control over what my purchase price will be.  I am also dripping this stock in which the complete dividend gets reinvested.

Disclosure:  Long RY and BNS

Photo Credits:  www.scotiabank.com
                        www.royalbank.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.

Income Trade Update

I  did an income trade a while ago with Royal Bank. 

May 15, 2013 - Purchased 100 shares of Royal Bank at 61.26  for a total of 6130.30 including commissions.

May 16, 2013 - Wrote a covered call Jun 22, 2013 62 for a option premium of 69.05 after commissions. I receive this premium right away as I am obligated to sell my shares at 62.00 strike price on or before expiration date. The option expired an I got to keep my shares.

June 26, 2013 - Wrote second covered call July 19, 2013 62 for an option premium of 39.05 after commissions. Like above I received this immediately in my brokerage account.

July 19, 2013 - My shares were called away as the price of  Royal Bank went up over $65 a share.
The assignment has a commission of 12.00 for the broker I use.


Total Return = Profit / Money invested
                     = (6200-6130.30+39.05+69.05-12.95)/6130.30
                     =2.689%

NOTE : I originally used an option assignment charge of $12.00, but after checking trading confirmations noticed it was changed to $12.95.


So what did I do with the option premiums and the capital gain from this trade ( Total $165.80). It stays in my brokerage account.

I missed the dividend record date for Royal Bank when I purchased the stock.

So for comparison sake, if I just sold the shares at $62.00 (assuming $4.95 commission to sell)
             Total Return = (6200-6130.30-4.95)/6130.30
                                  = 1.06%

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

Income Trade

A few days ago I decided to do an income trade.  I purchased 100 shares on Royal Bank (RY) at a cost of 61.26 excluding commissions. I then wrote a covered call with a Jun 21/13 62 call option for an option premium of 69.05 after commissions. This amount gets immediately into my broker account. Using a covered call allows an person to increase there rate of return.

If the price of Royal Bank stock goes above $62.00 the option might be "called away". That means I  am obligated to sell my shares at $62.00, which is the strike price. If the option expires worthless, I will then decide to sell or sell with a covered call.

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