Covered Call Block Trade on Canada Goose Holdings Inc (GOOS.TO)
For almost 20 years, our team at CIBC Private Wealth has used defensive option strategies including Covered Calls, Selling Covered Puts and Collars to manage client portfolios. Our objective is to generate income from option premium in addition to dividends paid on stocks. Our primary focus is on wealth preservation.
A Covered call is a defensive option strategy that involves buying the stock and simultaneously selling call option to reduce stock risk and generate additional income.
On November 13, 2019, we purchased Canada Goose Holdings Inc (GOOS) trading on the Toronto stock exchange. GOOS reported strong quarterly earnings, however, sold off given weakness on future sales guidance partly due to issues in their Hong Kong markets.[1] To take advantage of elevated option premium, we bought GOOS shares and sold covered calls. The deal is as follows:
Table Our Actual Trade for our Clients on November 13th, 2019 at CIBC Private Wealth
| Bought 10000 Shares of GOOS | @ $46.50 |
| Sold 100 Jan 2020 46 calls | @ $4.31 |
| Our net cost (Net Debit) | $42.19/share CAD |
If taken away at $46/share, we make 9.03% (=3.81/42.19) by January 17, 2020 or before (approximately 2 months and 1 week). Our net purchase price of $42.19/share is below the 52 week trading range ($42.38 to $95.58). In the meantime, we also have downside protection of 9.27% (=4.31/46.50).
Conclusion
Our objective with this trade is to take advantage of elevated short term option premium on Canada Goose given major market volatility post earnings. We are optimistic to generate these solid returns in a short period. However, if the stock goes down, we can roll out the options (sell additional time) to reduce our cost further.
As discretionary Portfolio Managers, we trade both stocks and options in bulk to get the finest pricing (net debit), and allocate to our clients base client risk profile and cash balances available in their account.
[1] Source 1 https://business.financialpost.com/news/retail-marketing/canada-goose-beats-revenue-estimates-shares-jump
Disclaimer
The material in this report comes from the personal/computer calculations of Avin Mehra and Ankit Mehra. In the event of a discrepancy between the data used in this report and the data generated by CIBC Wood Gundy, reliance must be placed on the data generated through the facilities of CIBC Wood Gundy.
Options involve risk and are not suitable for all investors. Investors should be aware of tax considerations, margin requirements, commissions and other transaction costs, as they may significantly affect the economic consequences of any option transaction strategy and should be reviewed carefully with your Investment Advisor and personal tax advisor before the strategy is undertaken.
The strategies presented in this blog are for information and training purposes only, and should not be interpreted as recommendations to buy or sell any security. As always, you should ensure that you are comfortable with the proposed scenarios and ready to assume all the risks before implementing an option strategy.
Avin Mehra is a Vice President and Portfolio Manager at CIBC Private Wealth and principal of Mehra Wealth Management. He has over 45 years of experience in the financial services sector. Before CIBC, he worked in several mid-level and senior positions with Indian and overseas banks in five different countries, before joining Merrill Lynch in May 2000 and transitioning to CIBC Wood Gundy in the year 2001. Avin manages accounts on a discretionary basis using defensive option strategies (namely covered call writing, selling cash covered puts, and collars). Capital preservation is of paramount importance and the team educates investors on how to protect the portfolio downside while generating a stable income stream from their investments. Mehra Wealth Management practice is fee-based, where clients pay a fixed percentage fee, but have access to unlimited trades in North American equities and options with zero trading cost. The team actively hosts monthly seminars on a diverse range of financial topics including Options Strategies, Taxation, Retirement Planning, Wills and Estate Planning, North American Stock Markets etc. Avin has been actively involved with the Montreal Exchange in educating Retail Investors and Portfolio Managers on using options as defensive tools. Avin won the 2019 Award for Best Active Manager in Exchange Traded Derivatives sponsored by the TMX Group, at the Wealth Professional Annual Gala. Avin was also part of the All Stars of Option Trading stream at the Annual Toronto MoneyShow on September 21, 2019. He presented on Covered Calls and Other Defensive option strategies. Avin is supported by his son, Ankit Mehra, a CFA Charterholder and Associate Investment Advisor. Ankit is enrolled in the accelerated MBA program (part-time) at the Schulich School of Business. Ankit assists his team with stock selection, research. portfolio rebalancing, team branding and options trading. For more information about the team, visit www.mehra.ca.
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Great article. GOOS is at $45.71 right now. If it hits above the $46, I wouldnt mind getting called out and keep the $4.31 premium as well!