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%.

Summary:

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.  

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.

Recent Option Trade

     When an individual buys a piece or real estate, they purchase insurance to protect them against huge financial burdens.  When a person buys a vehicle, they have to have insurance.  In fact, a person must show proof of insurance before they are even allowed to register the vehicle.  This has become a new norm in Canada over the past several years and assuming this will become the norm in other countries.

      Can you insure you retirement accounts?  More often that not, retirement accounts deal with mutual funds.  So these accounts are often not insured.  

       Can you buy insurance for your stocks?  The simple answer is yes.  If you own 100 shares of a stock, you can BUY a put option contract at a future expiration date and strike price.  Just like when you have car or home insurance, you pay a premium for this protection.  If no claim is made, you do not get the premium paid back to you.  

        The other side of  buying put option contracts is the put option seller.  The put option seller is the "insurance company" for stocks.   The seller of the option is paid a premium by the option buyer.  The seller of the put option is obligated to BUY a hundred shares of a stock for each put option contract that was sold on or before expiration date.  If the price of the stock stays above the strike price, the put option will not be assigned.

 

    The put option seller gets to keep the premium regardless if the stock goes up, down or side ways.  If the option is assigned, the option seller is put the stock at a lower adjusted cost basis.  This is because of the following formula:

 Adjusted cost basis = # of contracts*100 shares* strike price - net option + premium assignment fee 

     Not all brokerages charge an option assignment  or exercise fee.  Interactive Brokers does not charge this fee.

  

SUMMARY

   On August 23 2018, I sold 2 put option contracts in WestJet Airlines (WJA,TO).

number of contracts  : 2

Strike price : $17

Expiration Date :  September 21 2018 

Days to expiration:  30

Current Annual dividend : $0.56

Net premium received : $28.05
Option Assignement Fee:  $24.95

Scenario #1 - Option Not Assigned

Return =  $28.05 / ($3400)

            = 0.825%

At first glance, this return seems small.  This return represents the return for 30 days.  The annual return on my high interest savings account is 1.25%.

Annualized return = ($28.05 / $3400  ) *(365/30)

                               = 10.04%

Scenario #2:  Option Is Assigned

Adjusted cost basis = # of contracts * 100 shares * strike price -net premium + assignment fee
                                =2*100*17 - 28.05 + 24.95
                                = $3396.90

Yield = $0.56 / ($3396.90/200)
          = 3.297%

Let's compare this yield to the yield of purchase shares at $17 without an option.

My brokerage would charge a commission of $4.95 for 200 shares of stock.

Adjusted cost basis = $3400+$4.95

Yield = $0.56 / (3404.95/200)
          = 3.289%

Disclosure:  - Own 200 shares of WJA.TO
                    - Long WJA.TO

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.

Portfolio Update - July 2018

The month of July is now behind us. The big news in Canada is the start of the new PC government in Ontario, Canada having a session in the legislature.  The Doug Ford led Progressive Conservatives won a majority on June 7 2018.  A few weeks later the cabinet was named and the legislature was recalled for a session to start July 11 2018 to get down to business. This government is hoping they can restore confidence in Ontario and make Ontario the economic engine of Canada.

NAFTA is still not settled between United States, Canada and Mexico.  The markets continue to march higher even with oil falling to below $70.00

The government of Canada in May announced $4.5 million deal acquire the assets of Kinder Morgan Canada. That deal is expected to be done by August.  As of this time of this writing, the deal has not been finalized.  The government of British Columbia, the western most province in Canada, are going to court to stop the expansion of the Kinder Morgan Pipeline.

The price of a barrel of crude oil for West Texas Immediate is trading at $68.58 US.   Why do I keep mentioning the price of oil?  Energy companies make up a large percentage of the capital markets in Canada.  Also, the economic engine of Canada is Alberta, mostly to the oilfields directly or indirectly.

Portfolio Activity

During the month of July, there was 3 options trades started. During the month of June,  I made 2 options trades at the beginning of the month and one towards the end of the month.

Rogers Communications raised in value to above the strike price and stayed there.  Noticing the stock price was not receding to below the strike price of $65, I put a buy to cover order to closed the option and keep my shares.  The lost on this option trade was $395.10.

Restaurant Brands International (QSR.TO) has increased in value and I wanted to keep my shares. The strike price of was $82.00. So, I sent in a buy to cover order to close the option trade.  The lost on this option trade was $251.90.

The  naked 2 put option contracts in WestJet Airlines (WJA.TO) with a strike price of $17 expired, and I keep the $68.05 in premium.

In July, I "rolled" my trade in QSR.TO by selling a coverd call with a strike price of $88 and Aug 17 2018 expiration date. I collected a premium of  $54.05 after commissions.  The stock is trading  at $82.56.

I sent a personal check to the transfer agent for Bank of Nova Scotia.  The shares purchased this way are purchased with no commissions. This is the old, old way of purchasing shares.  The downside, you have no control over the purchase price of the shares.  I purchased 4.244999 shares of BNS.TO at $76.5607 for a total of $325.00.  Bank of Nova Scotia currently pays an annual dividend of $3.28 per share.  Therefore, this purchase adds $13.92 to my annual dividend income.  The yield on cost of this purchase is 4.28%.

Finally, the drip was turned on for High Liner Foods (HLF.TO).  The stock has been trading a lot lower over the recent months.  High Liner Foods over frozen fish products under High Liner and other named brands.  Also, High Liner Foods provides the fish burgers for McDonald's Filet of Fish sandwiches.

Shares Purchased Via DRIP

 0.387545 shares of BNS.TO @$76.8944 for a total cost of $29.80 (transfer agent)

As stated above, Bank of Nova Scotia pays a $3.28 per share per year dividend.  Therefore, this purchase adds $1.27 to my annual dividend income. The yield on cost of this DRIP is 4.27%.

Dividend Increases

A&W Revenue Royalties Income fund (AW.UN.TO) increased their distribution from $1.656 to $1.692 per unit annually.  This represents an increase of 2.17%.  I currently own 38 units of AW.UN.TO.  This distribution increase adds $1.37 to my annual dividend income.  This distribution increase is the second one in under 6 months.

Summary:

As of August 3, the value of the portfolio is $117380.88. This is a 2.54% increase over last month's total. The spreadsheet investment tab above has been updated.

Disclosure: Long all mentioned stocks

Please Note: All stocks are from the Toronto Stock Exchange except TTR which trades on the Venture Exchange.

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.

Recent Option Trade

 In May 2018, the pilot's union voted 91% in favor of strike action.  As a goodwill gesture to WestJet passengers, the pilots said they would not strike during the Victoria Day long weekend in May.  One of the major issues was that WestJet planned on hiring pilots from over seas for their new ultra low cost carrier Swoop.  Swoop launched on June 20 in Canada.  The pilot's union and WestJet came to an agreement the SWOOP planes will be piloted by WestJet pilots.  As a result of this agreement, a strike was averted even before the 72 strike notice was even given.  The pilot's union and WestJet continue to talk to have other issues addressed. but the possibility of a strike as been basically eliminated.  

  

Before the agreement over SWOOP being piloted by WestJet pilots, passengers were hesitant to book due to the possibility of a strike.  WestJet did come out and state that they will 100% refund any flights that were cancelled due to the strike.

WestJet lost millions of dollars as some of their potential passengers chose to book with their competitors as they did not want the worry of a strike hanging over their heads.

The price of the stock has fallen a lot over the last couple of months. Below is a 6 month chart of WestJet.

Click to Enlarge

Over the last week, a WestJet plane was grounded for 60 hours in London, England due to a mechanical problem.  The flight that was delayed was from London, England to Toronto, Canada.  The passengers on this flight could get compensation from WestJet.  

To Take Action or Not?

I currently own 200 shares of WestJet Airlines.  The company currently pays a $0.56 per share annual dividend.  WestJet (WJA.TO)  has not raised their dividend since the first 3 months of 2015.

I did not have a large amount of cash available. In fact, I do not have any cash available so the purchase would be entirely on margin. My current interest rate on my margin account in 6.95%.  The stock is trading at a dividend yield that is less than half of this amount.

I decided to sell 2 $17.00 put contracts with a July 20 2018 expiration day for a net premium of $68.05 including commissions.  As the option seller, I get to keep this premium regardless if the price of the stock goes up, down, or sideways.   

If the option is assigned before or at expiration, I would be buying the stock at a cheaper price and therefore a higher starting yield.

Summary:

annual dividend = $0.56

net premium received = $68.05

Strike Price = $17.00

number of contracts = 2

days to expiration = 23
option assignment fee = $24.95

Scenario 1: Option Not Assigned

Total Return = $68.05 / ($3400 -$68.05)

                     = 2.04%

This return of 2.04% is for 23 days. For comparison, the interest on my high interest savings account is 1.1% per year.

Annualized Return = [ $68.05 / ($3400 -$68.05)]  * 365/23

                               = 32.41%

Scenario 2:  Option Assigned 

I currently own 200 shares of WestJet. These shares were actually result of an assignment of short put option, which you can read about here.

Previous adjusted cost base = 4496.90

ACB = prev  ACB+ # of contracts *100 shares*strike price - net premium + option assignment fee 

         = $4496.90 + 2 *100*$17.00 - $68.05 + $24.95
         = $7853.80

ACB per share = $7853.80 / 400
                         = $19.63 per share

Yield on cost = $0.56 / $19.63
                       = 0.0285
                       = 2.85%

Conclusion: 

WestJet's biggest shareholder is a UK-based hedge fund.  Recently, the hedge fund added to their position below the $20 per share level.  The hedge fund is not demanding changes to WestJet and believes WestJet is a great company and is trading at a good value.

The share price recently dipped below $17 per share for a bit but quickly rebounded to close on Friday June 29 slightly above $18 per share.

I will be adding cash to my margin account when available instead of TFSA.  This will lower my margin.

Do you use options in your investing?

Disclosure:  Long WestJet

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

Recent Option Trades

       Options can be used for income or protection.  Investors and traders sell options of income and buy options for protection.

      For example, an investor owns a 100 shares of stock "ABC"and is scared the stock may drop in price.  The type of option to be bought would be a put option.  An investor  buying a put option has right but not the obligation to sell their shares at the strike price prior to or at expiration.  In this case, the buyer of the put option is buying a put as insurance.  If the price of the stock dropped a large amount, the buyer can exercise the option and will be able to sell the stock at the strike price.   The option seller is obligated to buy100 shares of stock "ABC" at the strike price if the option is in the money at expiration or is exercised by the buyer prior to expiration.  For this obligation by the option seller, he or she is paid a premium upfront.  When the option seller is assigned the stock, he or she is "put" the stock.
   
    The stockholder who owns 100 shares of stock can also sell a covered call option.  The covered call allows the investor or trader to be paid a premium upfront for the obligation to sell their 100 shares of stock at the strike price on or before the expiration date.

      An individual can also buy options without owning stock. In this case, options are a form of leverage without using debt. When an investor is bullish on the stock, he or she can BUY a call option contract(s) at a strike price and expiration day.  The opposite of this for when a person is bearish on a stock, the person can BUY a put option contract(s) at a strike price and expiration date.  In both these cases, the option buyer pays a premium.

Recent Option Trades

  My 2 recent option trades involve covered calls.

Option Trade Number 1

    On June 5, I sold 2 covered call option contracts on my position in Rogers Communications Class B Non-Voting (RCI.B.TO) stock

 Net Premium Received =  $20.05
Option Assignment Fee = $24.95
Current Annual Dividend = $1.96
# of days to expiration = 46
Strike Price = $ 65.00

 Return = premium received / money received from selling at strike price
             = $20.05 / $13000
             = 0.00154
             = 0.154%

This return is for 46 days

Annualized return = 0.154% *(365/46)
                              = 1.222%

    These returns are small.  The annualized return of 1.222%  is slightly higher than the interest on my high interest savings account of 1.1%.  The annualized return is rather low, but this is due to selling the option deep out of the money.

     If this option is assigned, the capital gain would be slightly if I sold the stock at the strike price without an option.  This is due to the net option premium received is less than the option assignment fee.

Capital gain = # contracts*100 shares*strike price + net option premium  - option  assignment  fee                                        -    (adjusted cost base of stock purchase)

Option Trade Number 2

    On June 8, I sold 1 covered call option contracts on my position in Restaurant Brands International (QSR.TO ) stock.

 Net Premium Received =  $34.05
Option Assignment Fee = $24.95
Current Annual Dividend = $1.80 US
# of days to expiration = 43
Strike Price = $ 82.00

 Return = premium received / money received from selling at strike price
             = $34.05 / $8200
             = 0.00415
             = 0.415%

This return is for 43 days

Annualized return = 0.415% *(365/43)
                              = 3.52%

  This annualized return is much greater than the interest on my high interest savings account of 1.1%.  I sold this covered call option contract with the option being deep out the money.  The annualized return is higher the the first covered call as QSR.TO stock price is more volatile than RCB.B.TO.  

Summary:

       The return on these positions is small as I sold these option contracts deep out the money.  This is still a possibility of these options being assigned before or at expiration day. I wrote (sold) covered call options on these positions to get some more money out of the markets.

Disclosure:  Long QSR.TO, RCI.B.TO

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.

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.

Recent Option Trade

         Over the past several months, WestJet Airlines have made announcements to try to grow as a company.  One of the announcements is the start up of their no frills ultra low-cost airline called Swoop. Swoop is suppose to start flying in June, despite the issues with the union.
        WestJet Airlines started in 1996 with 3 planes and is based out of Calgary, Alberta. Almost all of WestJet employees own shares in WJA.TO, as the company always believes "Owners Care".
  
         The price of fuel with oil over $60 a barrel, the union thinking different hiring practices for Swoop, and getting Swoop off the ground has been a negative for the stock in recent months.  The shares have faced resistance around $27 per share.  During the last week, WestJet CEO Gregg Saretzy retires unexpectedly. Gregg Saretzy has led WestJet for nearly a decade.

         At the market opening on Friday, the price of WestJet dropped to $23.00 per share.  I decided to take advantage of this.  I sold 2 WJA,TO April 20 2018 $23 put options at $0.70 per contract.

Summary

   My brokerage charges an option assignment/exercise fee of $24.95. Not all brokerages charge this type of fee.  I know for sure, Interactive Brokers does not charge this fee.

Premiums received minus commissions = $140.00 - $11.95 = $128.05
Option Assignment Fee = $24.95
Annual Dividend = $0.56 per share
Strike Price = $23.00
Expiration Date: April 20 2018
Days to Expiration : 42

Scenario One : Option not assignment 

Total Return = [$128.05 / $4600]*100
                     =  2.78%

 This represents the return for 42 days.  This return sure beats the interest rate on high interest savings accounts.

Annualized return = 2.78% * (365/42)
                              = 24.19%

 The amount of capital required in a margin account is 20% of break even. So, now lets calculate the return on capital

Return on Capital = $128.05 /(0.20*(4600-128.05)) *100
                              = 14.32%

This ROC of 14.32% is the return on capital for 42 days.

Annualized ROC = 14.32% * (365/42)
                            =124.4%

Option Two - Option is Assigned 

Adjusted cost basis = $4600-$128.05 + $24.95
                                = $4496.90

Yield = dividend rate / ACB per share
          = $0.56 / ($4496.90 / 200 )
          = 2.491%

For comparison, I calculated the yield if I just bought 200 shares at $23.00. My brokerage charges $4.95 commission.

Yield = dividend rate / ACB per share
          = $0.56 /[ ($4600+$4.95) / 200]
          = 2.43%

Edit: Option trade was made on Friday not Monday

Photo Credits: 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.

Option Trades Update

       May 17 was a down day on the North American markets. Investors and traders are concerned over recent events involving the President of United States Donald Trump.  Adding to this, is the low interest rates that we have currently.  Another major issue is that of Home Capital Group (ticker symbol HCG.TO).  HCG.TO, which is in the mortgage business, continues to be the major topic of discussion. Savers are continuing to withdraw their money from their high interest savings account, which is putting strain on the HCG.TO bottom line.  HCG.TO recently got a 2 billion line of credit from HOOPP, which is Healthcare of Ontario Pension Plan to try to stay a float.  HCG.TO has said in the last week, that replacing the HOOPP line of credit is a top priority due to the high interest rate on the line of credit.

       In Canada, the TSX Composite Index was down 269.65 points which represents 1.73% decrease from the day before. The S&P 500 was down 43.64 points, or 1.82%, for the day.  The Dow Jones Industrial Average was down 372.82. or 1.78%, for the day.

      I currently have to put options set to expire this month. My short put in Royal Bank is set to expire on May 19th.  The stock RY.TO closed at $91.45 today. My strike price is $92.00 and it is for a single contract.

     My other put option is in another Canadian bank, TD Bank.  My short put in TD is set to expire on May 26th.  The stock TD.TO closed today at $62.26, which is below my strike price of $62.50.  I also currently own 100 shares of TD.TO.

     Today's closing prices of these stocks are over $8.00 per share below their 52 week highs. I am not worried at all with option assignment on these stocks, as the banks have proven over the years that they are excellent companies to own.  If Royal Bank option gets assigned I will likely write covered calls as I would like my entry point to be lower. 

Disclosure: Long 100 shares of TD in margin account.

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.

Option Trade

          The big banks in Canada have falling in value recently. In particular, Royal Bank of Canada (RY.TO) has falling from it's 52 high of $99.90 from a few months ago.  RY.TO is currently trading at  $93.33 per share.

       The major topic in the news in Canada is the company called Home Capital Group (HCG.TO).  The company provides high interest savings accounts for savers at low interest rate and then writes mortgages with a higher interest rate, and basically makes money off the difference.  This business model has been failing as savers have been pulling there money out in droves.  The savers are doing this as they do not feel comfortable having their money there due to recent events happening to HCG.TO.  HCG.TO has recently gotten a $2 billion line of credit from Health Care of Ontario Pension Plan, which they have used approximately 1.4 billion dollars of to stay a float.

       In Canada, there is high cost of housing in Vancouver, Toronto, Edmonton, Calgary and Fort McMurray.  The highest of these costs and in Vancouver and Toronto.  Some people are talking about a possible housing correction, so this has caused the bank stocks to trade lower as of late and slightly offset with investors chasing yield by purchasing shares in the banks.

      So on May 10, I sold a put option in RY with a May 19, 2017 expiration day.  I collected a premium of $41.05 after commissions.

Summary:

Strike Price: $92.00
Total Premium Received : $36.05
Days to Expiration: 9
Current Annual Dividend = $3.48
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $36.05/ (1*100*$92.00)
                     = .00392
                     = 0.392%

The total return for 9 days is 0.392%.  The annualized return is 15.89%.  For comparison, my interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*$92- $36.05+$24.95] / 100
                                                = $91.89

Yield on Cost = $3.48/$91.89*100 %
                       = 3.787%

 What would the yield be if shares purchased directly at $92.00 using a limit order?

Commission = $4.95

ACB/per share = [1*100*$92.00+$4.95 ] / 100
                         = $92.05

Yield on Cost = ($3.48/ $92.05) * 100%
                       = 3.781%

Conclusion:

      From Scenario #2, we can see the yield on cost would be roughly the same although receiving a net premium of $36.05.  The option assignment fee of $24.95 greatly reduces the difference between the yield on cost of option assignment to that of purchasing shares out right.  Not all brokerages have an option assignment/exercise fee.

     As of this time, I do not plan to open an account with Interactive Brokers. I will open an account with Interactive Brokers in the future.

Disclosure: Currently do not own any shares of RY.TO in any accounts.

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.

Option Trade

 

   

        The big banks in Canada have falling in value recently. This decrease in value can be the result of a lot of things currently.  We are due for a recession in North America ,as historically, we have had a recession every 8-10 years.  Currently, right now Alberta is in a recession all of its own in Canada.  The province of Alberta major employer is the oil and gas industry.  The oil and gas industry involves drilling companies, production companies, oilfield service companies and companies whose derive a lot of business due to indirectly serving the oil and gas industry.  My previous employer made machined parts for the oil and gas industry and had one major client.

        A major issue in central Canada is the housing situation in Ontario in their largest city which is Toronto. Toronto and its adjacent areas such as Mississauga are part of what is known as the GTA.  The prices of houses here extremely high due do the population.  The mayor of Toronto and some members of their provincial government are concerned about a possible housing correction as they believe many people will not be able to afford their homes. Our interest rates are extremely low right now.  When they start to rise, the will mean higher mortgage payments eventually for the people.

       The other major city in Canada with similar high priced homes is Vancouver.  Vancouver is located in British Columbia. 

      So on May 2, I sold a put option in TD with a May 26, 2017 expiration day.  I collected a premium of $41.05 after commissions.

Summary:

Strike Price: $62.50
Total Premium Received : $41.05
Days to Expiration: 24
Current Annual Dividend = $2.40
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $41.05 / (1*100*$62.50)
                     = .0066
                     = 0.66%

The total return for 24 days is 0.66%.  The annualized return is 9.99%.  For comparison, my interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*$62.50- $41.05 +$24.95] / 100
                                                = $62.34

Yield on Cost = $2.40/$62.34*100 %
                       = 3.850%

 What would the yield be if shares purchased directly at $62.50 using a limit order?

Commission = $4.95

ACB/per share = [1*100*$62.50+$4.95 ] / 100
                         = $62.55

Yield on Cost = ($2.40/ $62.55) * 100%
                       = 3.837%

Disclosure:  Long 100 shares of TD.TO in my margin account.

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.

Option Trade - Trade Closing.

    Last month., Home Capital Group Inc. fired their CEO over night.  The stock price fell after markets opened the following morning.  I decided to sell put options. These 2 put option contracts had a strike price of $25.00 and an April 21 2017 expiration date.

    The stock rallied upwards for a bit, but has fallen.  The issues surrounding this company are causing investors to back off from buying and sellers getting worried about their investment.  Today the stock closed at $21.70 per share, which is an 8.63% decline from yesterday's closing price. 

   Earlier in the day when I was able to be at my computer, I closed my trade by putting in a Buy to Close order.  My order was filled at $2.35 per contract.  The stock was trading  at $22.80 per share when my order was filled.  So how much money did I lose on this trade?

 Summary:

# of contract = 2
Premium Received = $128.05 including commissions
Premium Paid = $481.95 including commissions

Total Loss = $481.95 - $128.05
                  = $353.90


       The lesson to learn here is when you sell a put for option premium income, buy a put option of lesser premium as insurance. Basically, your protecting yourself  if the trade goes against you which means the option was assigned. This will lower your net premium received, but will limit your loss.

      If an investor is willing to buy the stock at the strike price and wants to keep the stock as a long term hold, then buying a put option as insurance would be a matter of choice. 

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.

Option Trades : Trade #2

      Earlier in the day, I placed second limit order to try to collect some option premium(s).  You can read about the first trade form this morning, by clicking here.  I

      I have owned 200 shares of Rogers Communications Class B stock for quite some time.  I decided to write covered calls at a $60 strike price and April 21, 2017 expiration date.  The number of days to expiration is 25.  The limit order was set for $0.30 per contract.  I collected a premium of $48.05 including commissions.
  
     

Click to Enlarge

        This is a one year chart of RCI.B.  Rogers has traded below $60 over the past year. Investors have been retreating from this stock at times. The stock has paid a quarterly dividend, but Rogers Communications has not raised its dividend for about 2 years and kept their dividend the same.  A major reason for this was due to Rogers and its competitor Shaw coming together in a partnership with Shomi.  Shomi was created to lure their customers to sign up with Shomi, instead of the titan Netflix.  Shomi ended up not being successful  and the 2 companies shut it down Nov 30, 2016.  Both Shaw and Rogers took a huge write down as a result of shutting down Shomi.

      I decided to write covered calls on my position to collect some premium.  I am slightly bearish on RCI.B at the moment.

Summary:

Scenario #1:  Option Not Assigned

Premiums after commissions: $48.05
Strike Price = $60.00
Days to Expiration = 25
# of contracts = 2

  Scenario #1 :  Option Not Assigned.

Total Return= $48.05/(2*100*$60.00)
                    = 0.40%

This return of 0.40% is for 25 days.

Annualized Return  =[48.05 / (2*100*$60) ] * (365/25)
                                = 5.85%

Scenario #2:   Option Assigned

       If the covered called is assigned before or at expiration, my capital gain would be increased by the amount of net premium collected.

Conclusion:

     An investor in the capital markets can make money 3 ways from a cash flow perspective.  These 3 ways are interest, dividends, and option premiums.  An investor can sell a covered call when they are slightly bearish on the stock and want to make some extra income.  Investors can also sell covered calls, as they would like to be paid for something they are willing to do (Sell at strike price) anyway. 

Please Note:  Rogers Communications trade on both the NYSE and the Toronto Stock Exchange.  The stock trades on the NYSE under ticker symbol RCI.  The stock trades on the Toronto Stock Exchange as RCI.A and RCI.B
   
   I will update my investment tab speadsheet in earlier April to reflect this transaction:

Disclosure:  Long RCI.B, SJR.B

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.

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.

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.

Summary:

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.

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.