Options Trading

Recently I noted in a post that I opened up a new Interactive Brokers account in order to trade options more economically. I also shared how to move funds from your broker to IB and get started. Over the last couple of years, I have been dipping my toes and trying to understand how options trading works and trying to figure out what kind of strategy to use. Now that I have a better understanding of some of the basics, I decided to dedicate a separate to track my option trades.

Options trading can be a tricky strategy. There are multiple ways to play the field and make (also lose heavily) money. Some can be simple such as buying and selling calls and puts, some slightly more involved but still easy to understand – such as writing covered calls & puts; while some involve more complicated trades such as the bull call spread, bear put spread, butterfly spread, long straddle, long strangle etc.

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Option Assignment – IAMGold Corp

A closure in my portfolio — my covered call option that I wrote in June 2016 got called away closing my position in IAMGold Corp (IMG.TO). Its a company that I have held in my portfolio for a long time (approx 3 & 1/4 years) – through the depths of the gold & precious metals bear market. Now that the prices have recovered, I wanted to upgrade the quality of my gold mining company holding. IAMGold is a decent company, but has its problems with some management issues. There are better companies out there and I decided to upgrade with the purchase of B2Gold Corp (BTO.TO) last month.

Overall gains (including dividends and options premiums): 28%

Option Assignment – The Jean Coutu Group

Another position exits my portfolio. Earlier in the month, I had written a covered call option on The Jean Coutu Group (PJC.A.TO). The option expired on Friday Jul 15, 2016 with the stock ending up in-the-money, which resulted in the stock getting called away. I owned PJC.A.TO for approximately two and a half years and the company has traded sideways during the duration, although it reached a high of mid-$20s about a year ago.

I still believe in the long term growth of PJC and sad to see this stock get called away, but its a risk you take with options trading. Making a decent profit and staying in cash during these volatile times isn’t so bad I suppose…so I’m not complaining.

Overall gains (including dividends and option premiums): 17.88%

Recent Trades – Options

Last week, I wrote two covered calls on the following positions.
IAMGold Corp (IMG.TO)
IAMGold has been the dog in my portfolio. When I first started the position in my portfolio, the stock was paying a healthy 5% yield and had a 5-yr dividend growth rate of 33%. But last year saw the decline in gold prices which started cutting into the operating margins at the company – which resulted in IAMGold suspending its dividends. I have continued holding the position as it is still a great company and continues to be one of the most efficient companies in the sector. However, the weakness has resulted with this stock ending up in the red and I have decided to sell it to move my commodities exposure to some other company. However, instead of directly selling at today’s prices, I decided to write covered call options instead and let the market decide for me. I wrote seven Sep 20th calls with a strike price of $5.00 resulting in a total of $49.00 in premium. If the stock stays below $5.00, I keep the premium. If it rises above $5.00, the option will get called and I sell and exit my position. Considering that this is high season for gold stocks, the likelihood of the stock going north of $5.00 is higher.
The Jean Coutu Group (PJC.A.TO)
The Jean Coutu Group is a great stock, but with a current yield of 1.85%, I feel that there are better options out there. Although the stock has a great dividend growth rate, I have enjoyed a significant jump in unrealized profits. I ended up writing one Sep 20th call with a strike price of $22.00 resulting in a $30.00 premium.This adds $79.00 to my monthly income, which will handsomely bump up my overall passive income for the month of August.Disclosure: My full list of holdings are available here.

 

Boost Your Income With These ETFs

The stock market continues to linger close to the all-time high while the interest rates continue to hold at an all-time low. There is still no clear indication from the Fed on when the interest rates will rise – leaving risk-averse investors with paltry returns on cash and bond holdings. In the recent years, investors have rotated out of bonds and piled into the equities market driving up the stock prices. With most of the stocks either fully priced or overvalued, investors yearning for income have had to turn to alternate strategies. This article discusses one such strategy.

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