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.

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. I am bulling on Telus Communications at the moment. Looking at a 6 month chart of Telus Communications (T.TO).

Click to Enlarge

      On February 15,  I sold a put option in T.TO with a March 17 2017 expiration day.  I collected a premium of $29.05 after commissions.  The strike price is $42.00 per share.

Summary:

Strike Price: $42.00
Total Premium Received : $29.05
Days to Expiration: 30
Current Annual Dividend = $1.92
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $29.05 / (1*100*$42.00)
                     = .00692
                     = 0.692%

The total return for 30 days is 0.692%.  The annualized return is 8.42%.  My high interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*$42- $29.05 +$24.95] / 100
                                                = $41.96

Yield on Cost = $1.92./$41.96*100 %
                       = 4.575%

 What would the yield be if shares purchased directly at $65.50 using a limit order?

Commission = $4.95

ACB/per share = [1*100*$42.00+$4.95 ] / 100
                         = $42.04

Yield on Cost = ($1.92/ $42.04) * 100%
                       = 4.567%

Disclosure:  I do not own any shares of T.TO 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.