Saturday, November 20, 2010

Some updates on earlier investment ideas

I want to give some updates on 2 earlier investment ideas:

The first was posted on Friday, May 7, 2010 - Here is an idea for taking advantage of the recent currency fluctuations.

In short, the idea was to buy Microsoft (MS) with borrowed U.S. dollars. When I bought Microsoft myself, it was June, it was priced at $26.25 and the Cdn. dollar was 95cts per U.S. dollar.  Recently, I repayed the loan at an exchange rate of 99.2 cts. For that I paid interest of 7% per year for 5 months or 26.25*7%*5/12= 0.76cts . By repaying the loan at a better exchange rate, I gained: Cdn $26.25/0.95 = 27.62  minus Cdn $ - 26.25/0.992 = 26.46 =1.16 minus the interest of 0.76 = 0.40 cts per share in 5 months. That is an annual ROI of 3.6%

In the meantime I collected dividend twice (in June and in Sept) or ): $0.32 U.S. The stock is currently trading at US 25.69; somewhat less than I bought it for. But then I won't sell it for a while. So apart from appreciation I made $ 0.40 plus 0.32 = $ 0.72 or a annual ROI of 6.5%. Now, it is a matter of collecting further dividends and waiting for appreciation.

The second idea was posted on Thursday, October 21, 2010 - Call Options

In short, the idea was to write a call option 3 months out for BMO with a srtike price of $62. In this case I owned already BMO shares. But I figured that rather than running the risk of actually being forced to sell them, it was better to buy new shares to cover the call at $60.85 per share.

I got $1.05 for the option on Oct 21. Next the market moved up, but then we had last week's correction and the option price fell.  I bought it back for $0.40 on november 12. So that was $0.65 profit. On November 19, I wrote a new call option during a big rally. This is a two month option (exp Jan 22, 2011 for the same $62 strike price) and I sold it for $0.82.

So assuming BMO gets called for $62 coming January, I will hade made:
$1.87 in option premiums
$1.15 in cap gains
$ 0.70 in dividends (1 payment)

Total return in 3 months would be: 3.72 or an annual ROI of 24.5%

Ahh, Keep on trucking, Mama!

A friend gave me another idea, selling put options: the obligation to buy shares at a price you like. To do so, I have to adjust my account status but, it sounds like a very interesting way of making money too!

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