After Amber Tree Leaves gave a passionate presentation during the BENL FIRE meetup in Antwerp about options trading, I got interested in this trading method. Based on the presentation, we made the decision to only write options in an attempt to either:
- purchase additional dividend shares (via put options)
- try to earn some extra money (in addition to dividend) on dividend paying shares (via call options)
I’m not going to write an entire tutorial here with regards to options, but here are a few useful sites if you are interested.
For the Dutch among you that want to understand the basics:
For those of you that want to go into a bit more detail (both are in English):
A great blogroll for options trading can be found here:
Short options summary
What’s important to realize is that there are 2 “types” of options. You have “call” and “put” options. The differences are as follows:
- Call options: These options give the buyer the right (not the obligation) to purchase the shares of the underlying asset at the predetermined price on or before the specified date.
- Put options: These options give the seller the right (not the obligation) to sell the shares of the underlying asset at the predetermined price on or before the specified date.
You can buy and sell both call and put options. Giving you 4 ways to trade options. The chart below gives you a visual indication.
The other important thing to consider is that when you write options, you can earn a premium as you take the risk that you have to either buy (put option) or sell (call option) the underlying shares (usually at 100 shares per contract) at a given price (the strike price).
This writing of options and collection of premiums is what we are after.
We bank with the ING and also have our trading account with this bank. This is temporary as we may eventually move to an actual broker such as DeGiro/Binckbank/Lynx/Alex at a later date to keep trading costs in check. DeGiro actually has a nice overview of trading costs of the various Dutch brokers.
With the ING we are only able to trade options at the AEX (Amsterdam Stock exchange). Here is a list of the options we can trade:
Not a whole lot of choice but because we are just starting to trade, we are more than happy with it.
This week we wrote a total of 8 contracts, 6 puts and 2 calls. The puts were on AH, RDSA and VPK; the calls on UNA. An overview of the options we traded can be found below.
With the above noted options we have a “best case” and “worst case” scenario.
The “best case” scenario is that we earn all of the received premiums (about €577) and our holiday in April is pretty much paid for. This would be nice for an first attempt at trading options 🙂
In the “worst case”, when all contracts are exercised and we have to buy/sell all shares at the various strike prices, we suddenly own about €16.300 in additional shares of AH, RDSA and VPK. But we would get about €9.300 in cash and lose all our UNA shares (making about €2000 in profits along the way due to the UNA share price increase since our purchases).
The final results will be somewhere in the middle. We might sell a few of the option contracts if we are happy with the profits made. And perhaps some will be exercised and we will receive some more dividends in April, May and/or June. These are the upcoming dividends payment dates for VPK, AH and RDSA respectively.
Time will tell! But I’m definitely are having fun trying this new trading method. Just need to get a better feel for the risks, prices and define our buy and sell strategies. Any tips of tricks are more then welcome!