RE:RE:RE:RE:RE:Happy to pick up shares here!
Pandora wrote: JayBanks wrote: If this price stays below 6.75 at the close of Friday, I just picked up 3000 more shares... I got .32/contract... After all my fees that's a 6.48 share price for an 11.11% yeild...
I could have got a better price buying outright, but I didn't have $20k outright, so this was an easier way to make the buy as I only had to put up about $6k and should the price jump above $6.75 and I miss out on the shares... I got $912.51 for my 5 days for time at no cost...
For someone who knows nothing about puts and calls how about showing the math behind what you're saying.
Options are a pretty fun way to make money, you should spend some time learning the ins and outs of it. Call Options can be utilized with your TFSA, and in a margin account you can do Calls and Puts. I had to do a verbal test with my bank for 20 minutes to prove I had an understanding of terminology and systems used because I'm an untrained retail investor.
So what I did:
I selected the December 8th Put options with a Strike price of $6.75... If the price falls below or on that price at the end of the trading day of the 8th ("In the Money"), I agreed to buy the stock for that price. If the price is above it ("Out of the Money"), I get nothing except the premium I got paid today.
Because I 'sold' the Put option, I collect the premium. It was an already "in the money" option so the premium follows the (Strike price - the active trading price = premium) usually within a few cents. Out of the money options you use the premium as an added discount on the Strike and active price (which is how most people play the Put game).
So my Premium I took was .32 here's where the math begins... The way I calculate my results is:
I collect today:
.32 (premium) x 100 (shares in an option) = 32 - 1.25 (bank fees per option) = 30.75 x 30 (number of options I traded) = 922.5 - 9.99 (bank fee for a trade) = $912.51 I took home today and keep no matter what and is all I'll get if the Put finishes outside the money
If I have to exercise the option and take the shares:
30 (options) x 100 (shares) = 3000 x 6.75 = 20250 (book value) + 65 (bank fee to exercise option) + 9.99 (bank fee for transaction) + [30 x 1.25 =] 37.5 (bank fees per option) - 912.51 (premium I already received) = 19559.98 (cost of shares to me after everything is completed) / 3000 (shares in transaction) = $6.48 (cost per share of my transaction)
So that's the transaction math...
Why I do Puts rather than buying outright, I aquire using my margin value, because I'm over extended, and selling a put option it costs me nothing until completion and even then I only have to use about 30% of the value of final trade to make a trade with it.
So buying shares outright, lets use my final cost:
6.48 x 3000 = 19440 + 9.99 (trade fee) = $19,440 I have to have free to buy outright in cash or margin
In put options I can make the same result looks like this:
6.75 x 100 = 675 x .3 (30% margin value required) = 202.5 x 30 (options) = $6,075 of margin space avalible I need to aquire those shares
Because I'm using the margin space to secure the transaction (which is no longer avalible until the option plays out), until I have to purchase the shares I have not borrowed any money therefore I pay no interest until the shares are purchased in my account...
Hopefully, I've clarified it much better. I've only started doing this since early this year, I was scared of options because I didn't understand them myself until I did like a month of reading and watching tutorials... and I don't still don't fully understand advanced option strategies. I'm pretty basic and a little unconventional... But you can almplify your portfolio returns greatly with thier use, but also a screw up/ bad luck can be expensive.