Savings Hack - Update #1

I recently wrote about a Savings Hack, and that trade #4 was still open. 

Trade #4 was a covered call expiring January 21, 2022.  The covered call was on ATD.TO with a strike price of $49.  I received a net premium of $139.05.  This option expired worthless as the stock traded below $49 at expiration.

After that post,  I did another trade. 

On January 24, I sold 1 Jan 28 2021 $49 Call at $0.55.  I received net premium of $44.05 after commissions.

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  On January 28th, the option was assigned as it traded in the money at expiration.  When selling a call option, an option trading in the money means it trades above the strike price. 

Summary:

In the original Savings Hack article, trade number 2 is the ATD.TO purchase of 100 shares.  

Initial cost:  = $4829.95 

Option Assignment fee = $24.95

Net Option Premium = $44.05

Proceeds of Sale =  $4900.00

Profit =  Proceeds + premium - assignment fee - initial cost

         = $4900.00 + $44.05 - $24.95 - $4829.95

         = $89.15

This is capital gain I will report on taxes for the completion of this trade.

As per the above linked article, I transferred $300.18 to my savings.  This $89.15 will be sent to my savings account.  So that is a total of $389.33 to my savings.

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.

Savings Hack

  My savings has taken a hit over the past 3 to 4 months.  I had to dig into my savings to pay for dental expenses.  The first dental expense was expected as it was a cleaning.  I then had to go for a second dental appointment expense was for 2 fillings.

About a week later, one of the fillings fell off.  I went to the dentist to get it fixed and the dentist tried to fix it.  It was a complete failure.  The dentist did not freeze my mouth and would do a little bit of bonding and then get me to feel it.  It was torture.  There was no charge.

Next week, I will be going to get it fixed.  I am going to make the  dentist freeze my month before any work is getting done.  There will likely be a charge for this.

When ever I got paid, I paid myself first 6% to my savings account.  All this went into a normal savings account.

How did I boost my savings?

My trading account did not have any active trades.  So, I decided to use this money and borrow some money on margin and did some trades.  Any dividends, capital gains and option premiums would be taking out immediately and place in my EQ Bank High Interest Savings Account (referral link).  The interest on this account is 1.25%.  

Trade #1  

Oct 20  - Bought 175 shares of T.TO at $27.74 for a total cost of $4859.71 including commissions.

Oct 22  - Sold 175 shares of T.TO at $27.92 for a total if $4880.79 including commissions.

Profit =  $4880.79-$4859.71

         = $21.08

Trade #2

Oct 26 - Bought 100 shares of ATD.B.TO at $48.25 for a total cost of $4829.95 including commissions.

This trade is still open.  I sold covered calls on the position.

Trade #3  (Covered Call #1)

Nov 1   Sold 1 Nov 26 2021 ATD.B.TO $49 Call at $1.40 for a net premium of $129.05

Nov 26  Covered call expired.

Trade #4  (Covered call # 2)

Dec 2  Sold 1 Jan 21 2022 ATD.B.TO $49 Call at $1.50 for a net premium of $139.05

As of December 24, this option has not been assigned.  The stock now trades under the ticker symbol ATD.TO.  The stock closed at $52.45 on December 24.

I received a dividend from ATD.TO for $11.00 CAD on December 16.

Summary:

Capital gains = $21.08

Option premiums = $268.10

Dividends  = $11.00

I made $300.18 that went directly to my savings.

For disclosure, I also own the stocks mentioned above in my other accounts.  

Note:  - T.TO is the ticker symbol for Telus Corporation

          - ATD.B.TO is the ticker symbol for Alimentation Couche Tard

Note:  ATD.B.TO was merged into ATD.A.TO at 1:1 ratio and ticker symbol changed to ATD.TO

Disclosure:  Long T.TO in TFSA

                  Long ATD.TO in RRSP

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.

How To Get High Yield in Savings Account

       In this current interest rate environment, the interest rate on high interest savings accounts are laughable.  With inflation, a saver is losing money as the interest rate is lower that the rate of inflation. The rate of inflation in Canada, as per www.tradingeconomics.com is approximately 1.6%.  As of Feb 12, the highest interest rate is 2.00 at EQ Bank as per www.ratehub.ca, which surpasses this by a small amount.

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   I went hunting to look for a higher yield that is greater than inflation.  I had previously purchased units in an ETF that had a high yield. The Horizon Natural Gas Yield ETF was trading below $16 a unit, so I decided to take a closer look.  Below is a chart of  HNY over the past 365 days.

     From the chart, we see the price of the ETF is highly volatile.  This high volatility is justified by the investment  objective of the fund which is:

The investment objectives of Horizon's HNY are to provide unit holders with : (I) exposure to the price of  natural gas futures hedged to the Canadian Dollar less the ETF's fees and expensens, (II) tax-efficient monthly distributions, (III) in order to mitigate downside risk and generate income, exposure to a cover call writing strategy. (Source : http://www.horizonsetfs.com/ETF/HNY )

    In general, a savings account is not suppose to decrease in value unless you take money out.  I put some savings into my margin account to purchase high yield assets. On of these purchases involved purchasing units of HNY.  On Nov 8 of 2016 I purchased 14 units of HNY at $13.64 per unit. My brokerage has a commission free ETFs, so the overall commission was $0.05 due to ECN fees.  Therefore the total cost of my units is $191.01. 

    The distribution varies month to month.  The last distribution payment was $0.11363 per unit. So if this yield was paid each month, an investor (in this case: a saver) could annual yield of 8.64%.  This yield of 8.64% represents a percentage of net asset value the day before the ex-dividend corresponding to the last distribution of the fund. 

I received 3 distributions so far from this position which are  $1.59, $1.38 and $1.59 for the last 3 months.

     Currently, the annual interest rate on my high interest savings account is 0.80%.  So for a balance of $191.01, I would roughly have made $0.42 total in interest. I used 100 days which is slightly above the actual amount of days from Nov 8 to Feb 12.

      With the high volality of this ETF, as indicated in the chart above, the majority of my savings are in high interest savings accounts that pay little interest.  With the high volality of this position,  I purchased my units when the price of the ETF was below $14 per unit.  I do not count the distributions from these HNY units in my monthly dividend income totals.

Do you use strategies like this, to boost your savings?

Disclosure:  I own 39 units of this position inside my TFSA at a cost of $13.60 per unit.

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.

High Interest Savings Part #2.

       We continue this topic from the last entry.

 During the last week, the FED raised the rate by 25 BPS, or 0.25%.  This will lead to a trickle effect where the interest paid on loads and mortgages will have the interest rate increased.  This will eventually likely lead to increase in the interest rate of savings accounts.  This increase in the interest rate on savings account still keeps the interest rate small.  So a saver should try possible other options if they have a well funded emergency fund in place.

  An option is to sell deep out of the money or simply out of the money put options on stocks or ETFs.  When you sell a put option, the investor receives the option premium minus commissions upfront.  So, if the price of the stock remains above the strike price or goes sideways, the investor still gets to keep the premium and can do a rinse and repeat with the same stock or a different stock.

  If the put option is assigned, the investor purchases the stock or ETF the strike price.  So the adjusted cost basis is  calculated as follows :

       Please note:  Not all brokers charge an option assignment fee for an option seller or option exercise fee for an option buyer.

      So what can the investor due if the option is assigned. If he wants to get rid of the stock , he or she can sell a covered call.  A covered call gives the option seller the write to sell 100 shares of stock multiplied by the number of contracts at the strike price at or before expiration.  The covered call writer receives a premium up front.  An additional bonus of this method is that, the covered call option seller with receive the dividend if they owned the stock before the ex-dividend date. 

    The premium collected should not be account as income per se. Keep it in the savings account to help the balance grow.  The downside of this method is the saver can end up losing money if the stock or ETF falls in value.

Disclosure:  I used these methods from time to time in my investing 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.

High Interest Savings Account ?? - Part 1

   As we go about our daily lives, we are told to save money. But in 1971, United States President Richard Nixon took US off the gold standard.  That meant the US dollar became debt, or a currency.  Currently we have extremely low interest rates, and therefore the interest on a high interest savings account is low.  My high interest savings account current pays an annual interest rate of 0.80% per year.  This is laughable actually as it below the rate of inflation.

   Is there a different way?  I do believe an individual should should save up enough money to have an emergency fund, by saving money in the usual way.  Once the emergency fund is fully funded, an individual could buy a commission free ETF that pays a distribution yield greater than the rate of inflation.  Currently, I am doing this for savings. I currently investing in the Horizon Natural Gas Yield ETF (ticker symbol is HNY) on the Toronto Stock Exchange. The distribution yield is over 8% and pays monthly. Obviously, this will help grow you savings even quicker. I believe your investing and saving should be different.

   Is there a downside using a commission-free ETF for savings? Yes, there is a downside.  The value of the ETF could decrease in value.  So an individual should purchase the ETF at a low price and just not buy an ETF for the sake of buying an ETF. 

   I  purchased 14 units of HNY in the past month at $13.64 per unit.  Currently, the price per unit of HNY is over $15 per unit.  They just paid their monthly distribution, so I received $1.59 for being a unit holder.  Currently, with my high interest savings account I would have to have a balance of roughly $2385 to get this amount of interest per month, based on a yearly annual interest rate of 0.80%.  I invested a total of $191.01 in HNY and I received $1.59 in one month.

Please Note:  HNY is highly volatile

We continue this issue in the next entry.

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.

Saving Options

    We are in a low interest rate environment. The interest of high interest savings accounts is under 1.25%.  This is what the banks consider high interest LOL. So basically an everyday bank account should have 0% or very close to it.  With inflation, you are actually losing money as inflation is around 3%.  Guaranteed Investment Certificates, or GICs, pay very low interest as well. The interest rates on GICs is pretty similar to high interest savings accounts.  GICs is the canadian equivalent of CDs in the United States.  Also, the interest paid by these accounts or investments are taxed at marginal rate in Canada which is equivalent to ordinary (earned ) income in the United States.

 What Other Options Do Savers Have?

  First of all, I do believe an individual should save an adequate emergency fund by having easy access to this money. Then a saver has to look for more options to get a little return on their money.

After the emergency fund is completely funded, an investor has some options which are as follows:

1. Purchase an dividend ETF
2. Purchase a bond ETF
3.  Buy physical gold or silver
4. sell deep out of the money put options

     Option 1 is to purchase a dividend ETF. This is most beneficial if you have commission free ETFs with your broker.  A regular dividend ETF, that is not exposed to leverage, can pay a distribution greater than 3%.  The distribution will be more tax advantageous than an interest payment as the distribution should consist of dividends and return of capital. So, if savers can buy ETFs exposed to stocks commission free , this will be a way to get a yield.  Please note that the ETF stock price can move up or down just like regular stocks.
      
     Option 2 involves purchasing a bond ETF.  Like I mentioned above, purchasing a bond ETF is most beneficial when it is commission free. Some brokers have commission ETFs while other brokers don't. The distribution payment would consist of mostly interest and return of capital. The disadvantage of the bond  ETF as compared to a dividend based ETF, is the interest from a bond ETF would be taxed at a higher rate.  The advantage of a bond ETF is that price of the ETF remains relatively flat over long periods of time.  Currently I am doing something in my TFSA with a bond ETF, whose ticker symbol is CBO.

      Option 3 consists of buying precious metals like silver and gold. These two assets are physical assets and do not provide income.  An investor, or saver has to hope the price of the asset goes up from when they brought it. An investor, or saver, could also buy an ETF that is exposed to silver or gold which doesn't have a leverage component to it.

       Option 4 involve selling deep out of the money put options.  The investor will be paid up front a premium. Although the premium will be small, it is still cash flow that will likely be greater than what you get in interest form a savings account. In order to  this without having debt, an investor should build up enough money besides the emergency fund to to able to do this.  There is always a chance that the option could be assigned and you do not want to have to be in debt to do this effectively.

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.