Final Follow-up – Writing Covered Calls on Units of XFN
Underlying Asset
iShares S&P/TSX Capped Financials Index
The iShares S&P/TSX Capped Financials Index ETF seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P/TSX Capped Financials Index, net of expenses. The index is comprised of constituents of the S&P/TSX Composite Index in GICS Sector 40, but excluding GICS Industry Group 4040 – Real Estate. Constituents are capped at 25% weight.
This week, we present a follow-up on the covered call write position we took on XFN on September 9, 2016. We had written 10 call options on XFN 161118 C 32 at $0.40 as protection against a slight drop in prices and/or to profit from relative price stability. We were also counting on being able to collect two dividends of $0.09174, for a total of $0.18348 per unit. We managed to collect the dividend paid on September 14 but not the dividend of October 24, since the price of XFN rose above the exercise price of $32, to $32.42, on the day before payment. Consequently, we must assume that the holder of the call options we had written exercised them, and that therefore we sold our XFN units at the strike price of $32 on October 21, 2016.
Initial position on September 9, 2016
- Prior ownership of 1,000 units of XFN (current price of $31.61)
- Sale of 10 call options, XFN 161118 C 32, at $0.40
- $400 credit
- Total debit of $31.21 per unit for a total of $31,210
Final position on October 21, 2016
- Sale of 1,000 units of XFN at the strike price of $32 ($32,000 credit)
- Collection of a dividend of $0.0920 per unit
- $92 credit
- Total credit of $32.092 per unit for a total of $32,092
Profitability
The total profit per unit is $0.882, for a total profit of $882 ($32,092 less $31,210).
Total return over the 42-day period is 2.83%, or 24.55% on an annualized basis.
Good luck in your trading, and have a good week!
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 options strategies.
President
Monetis Financial Corporation
Martin Noël earned an MBA in Financial Services from UQÀM in 2003. That same year, he was awarded the Fellow of the Institute of Canadian Bankers and a Silver Medal for his remarkable efforts in the Professional Banking Program. Martin began his career in the derivatives field in 1983 as an options market maker for options, on the floor at the Montréal Exchange and for various brokerage firms. He later worked as an options specialist and then went on to become an independent trader. In 1996, Mr. Noël joined the Montréal Exchange as the options market manager, a role that saw him contributing to the development of the Canadian options market. In 2001, he helped found the Montréal Exchange’s Derivatives Institute, where he acted as an educational advisor. Since 2005, Martin has been an instructor at UQÀM, teaching a graduate course on derivatives. Since May 2009, he has dedicated himself full-time to his position as the president of CORPORATION FINANCIÈRE MONÉTIS, a professional trading and financial communications firm. Martin regularly assists with issues related to options at the Montréal Exchange.
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