Canadian CANNAINVESTOR Magazine November 2018 | Page 226

So she wrote 10 and sold 10 identical contracts for the same price. When the other investor exercised their right to buy her shares for $11 each she could then turn around and exercise her right to do the same leaving her with 1,000 shares of Aurora and the options contract cost her $300 and was paid for with the proceeds she received when she wrote her own. As with many things, the only ones that made money were the brokers!

Why would someone do this … perhaps so bullish on the stock that they are counting on someone exercising their right before the share piece peaked meaning they are looking for an arbitrage (example – the person that bought her “sell to open” contracts exercised them on October 15th and she is counting on the share price reaching $20 by year’ end for example).

One could also “sell to open” shares that they do not own themselves – this called a naked call. This is very risky and appears here merely for discussion purposes. An uncovered option is an options strategy where the investor writes, or sells, options contracts without holding an offsetting position in the underlying asset. The investor writes an uncovered call when they do not own a long position in the underlying asset. An example in this case could be our investor bought those same 10 Calls for $300 and immediately wrote 10 uncovered calls with the same January 18, 2019 expiry date but at a $12 strike price. Should anyone exercise their right to buy shares from her at $12 she could instantly exercise her right to buy 1,000 shares at $11. In this example, we know she received $300 for her “sell to open” $11 contracts and at that time the $12 calls could be bought (“buy to open”) for $0.25 each. In this example, she made $50 only because it was 10 contracts with a price difference in her favour of $0.05 but you can get a sense of the ROI potential if the price different and volume was significant.

Click Here for Options on the NASDAQ and NYSE.

As the above examples and other content illustrate there is myriad of strategies one could employ especially when combined with other strategies.

Following are two useful links to learn more and there also many books and online public domain videos and tutorials … check with your broker as they also likely have material available to clients.

Fidelity Investments – Introduction to Options Part 1, Part 2, Part 3

Questrade – Options Strategies for Advanced Traders

There is nothing wrong with starting low and going slow … buy 1 or 2 low cost contracts with strike prices and sentiment (Call = bullish; Put = Bearish) that meets your investment parameters and outlook or create a practice account. The cost of any mishap is probably minimal. You can even use a spreadsheet and create practice portfolios and many websites offer practice portfolios at no cost.

Always remember that all of our content is for discussion purposes only to raise awareness. You and you alone are solely responsible for any decision made because all content is not tax, accounting, investment, financial, legal, health, or medical advice whatsoever.

Until next time – invest long and prosper AND to our thousands of American subscribers all of us wish all of you and your loved ones a Happy Thanksgiving!

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