Last month I wrote how to make some easy money by selling a put option for Teck Resources. The option expired several days ago and I made $48. Cool beans! Since my trade was successful I decided to do it again. So after the option expired I sold another put option for TCK.B for the strike price of $23, that will expire in August. The most I could potentially make from this trade is $52.76 🙂 By repeating this simple trade on a regular basis I could make a few hundred dollars every year with minimal risk! Not a lot of money, but better than nothing.
Just like before, there are only 2 potential outcomes of this event.
Scenario 1- By August 16th TCK.B shares stay above $23/share. So when the contract expires I keep the $52.76 premium with no strings attached
Scenario 2- By August 16th TCK.B shares fall below $23/share. The contract is exercised and I’m forced to purchase 100 shares, but still keep the $52.76 premium.
Ideally I would like scenario 1 to happen, but scenario 2 isn’t a bad outcome for me either. When I originally bought 61 shares of Teck Resources years ago I purchased the stock at roughly $33 per share. I realize now that I overpaid. Teck is one of the few companies that has under performed in my portfolio 🙁
But investors have a tool at our disposal called dollar cost averaging. This means if our investment falls after we buy it, we can simply buy some more to lower our average purchase price. Since the whole point is to buy low and sell high, by lowering the average price that we buy at we don’t have to wait for the stock to increase as much to make a profit.
So even if my option gets exercised I’ll be happy to pay $23 per share which will lower my adjusted cost bases to about $27 instead of the current $33. Selling options is fun 🙂 Since no leverage is used there are no extra costs like interest. Speaking of interest, I recently wrote an article for mint.com showing how faster credit card payments can save consumers a lot of money.
Random Useless Fact:
The World Cup can perform miracles