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I have been trading, specifically selling, options since 2020, and have a routine going, where I sell Puts and Calls, promises to buy and sell, respectively, shares of stock at a specific price. For these promises I collect a nice premium. I sell these the first Friday of the month, to expire 6 weeks later, the following month’s 3rd Friday. January 17, a couple of days ago, was such an expiry day. I’d like to share an illustrative story.
On December 6, I sold something called a Short Strangle on Canadian Natural Resources, CNQ, when the share price was around $46. I sold a Put, a promise to buy 200 shares of stock at $45 per share, for $237.50. The risk was $9000, expiring January 17, and while it doesn’t seem like much of a premium, when you annualize it, as a percentage of the risked amount, it is 23%, and I can keep doing it month after month, so that 20+ percent is real. So if the stock is lower than $45, I will buy it for $45.
To complete the Strangle, I also sold a Covered Call, with the strike price being $47, and my promising to sell 300 shares of CNQ at $47. I got 215.25 for that, annualized 13%.
The reason this strategy is powerful is because at most only one of these can be true, and I got two premiums. And if the price of CNQ ends between 45 and 47, I get off scott free, and made $452.75 off nothing.
On January 17, I looked at CNQ and was convinced the price would be under $45, and I would get 200 shares via the Put. I therefore sold a Call on January 17, with the strike price of $45, expiring February 21, for 356.25, which annualized is 28%. This is something called the Wheel Strategy – you sell Puts until you get the stock, collecting double digit percentage returns just by having access to the money in your margin account, and once you get the stock, you sell Calls until the stock gets called away. You’ll note the old Put and the new Call had the same strike price, so I would have paid $45 for the stock, and sold it for $45 as well, and made the premiums just for having access to the money, with no capital gain or loss.
The bit of a twist was that CNQ recovered throughout the day and ended at 45.01, so I never received the 200 shares of CNQ stock, and you can see both the January 17 options expired worthless. I have a significant amount of CNQ, so if CNQ goes above 45 in the next 5 weeks, I’ll lose 300 shares of the stock out of my stock pile, just as if I sold it at $45. I don’t mind that, because I have some margin debt, so this will go toward paying it off, with less than 10% of my CNQ shares. And the premiums were a high rate of return on the 9000 worth of CNQ stock, so I made a nice return. If CNQ goes down below 45, this Call too will expire worthless. You’re right if you are thinking that I will lose money on my 3200 shares of CNQ as CNQ’s price goes down, but that would have happened anyway for a buy and hold investor, and I just made an extra 356.25 premium as a bonus. And if CNQ goes above $45, and I only get $45? Then it’s like if I just sold the stock for $45, and the premium was a nice bonus.
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Vijayendra Balakrishnan says:
With Donald Trump’s re-election, and the impending Tariff war, there’s potential(plan) to cripple the Canadian economy on an already stressed and heavily taxed citizen, Is it a good strategy/timing to shift to cash holdings. If so, what are some good options to park the cash?
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Hi Vijayendra – I’ll disagree with your premise for a second… the Tariffs could be just a bargaining chip, and they might never happen. Or if Canada (and the other countries) do not respond, the US tariffs will just slow our GDP growth. The US imports our oil, and lots of it, so they won’t tariff that, for example. It’s not intended to ruin anyone’s economy, but to make Trump feel like a man. If the tariffs are implemented and go against many countries, and those respond, that will hurt the US as well, and Trump would hopefully quickly reconsider.
As to our heavily taxed citizens, our taxes are lower now than they have ever been. The damage, at least psychologically, is being done by the inflation. We’re not even in a recession. People forget the raises they got and hate going to the grocery store.
Lastly, timing the market is a really bad idea, since people are often wrong, or time it badly, but I leave that to you.
So, to answer your question, you can find a HISA that gets the best interest rate – you might catch a promotion that runs for 6 months, if you think the crash will happen quickly, that might work for you. Look at CASH.to and the like (PSA, HSAV, HSUV.u, etc.). ZST and ZUS.U are also possibilities. There is also ZUCN. They just vary by taxation, whether they are insured and how, and how much they pay in interest.
I hope that helps.
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I ran a Friday, December 6th, 2025 morning session of my options selling, so here is the summary spreadsheet. To summarize, I’ll get more stock via the Puts, if the share price is below the strike price of the Put, and I will lose the stock via the Calls, if the share price is above the strike price of the Call. I collected $945 in premiums for these “promises”.
A couple of points of interest, all regarding CNQ:
(1) I implemented the Wheel strategy: the previous round, I received 300 shares of CNQ @ $47 per share via selling Puts, because the share price was below $47. For those Puts, I received $353 in October. This time around, I sold a Call for the same 300 shares, again with the price of $47, so if CNQ goes above $47 in the next 6 weeks, I get my money back for the 300 shares, and I made another $215 without losing any money on the share price, just by having access to the $14,100 and paying a little interest for 15 weeks. If CNQ stays below $47, I get to keep the shares and the $215, but keep paying interest.(2) This time around, I also sold a Put on CNQ, but only for 200 shares. This is called a Short Strangle (see picture below). If CNQ stays between $45 and $47, both will expire worthless (best case), but at worst, only one of the Put or the Call can be “in the money”, and I collected twice the premium.
The short strangle is composed of two sold options. If the stock doesn’t move (or not much), both will expire worthless and the premium collected is the return I get. There can be a loss if there is a significant move to the up or down side, but obviously only one of those can happen, and there were two premiums collected.
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Ed says:
I trade stocks inside my TFSA and I have read a lot of articles about the CRA coming after people because they are deemed to be “treating their TFSA like a business”. Each case seems to be unique and the CRA doesn’t really publish anything that you could use as a guideline. I am by no means day trading but I have done pretty well. Are you aware of any “real” rules that would make your TFSA taxable due to trading.
Oh and I have never found anything where the CRA has notified anyone that they have a claim a capitol loss because they lost money in their TFSA only if they make too much.
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The CRA hasn’t published anything, so no, there’s no “real” rules, and it’s sliding scale. If you daytrade, then you’re probably treating the TFSA as a business. If you don’t have a regular job, then that makes it worse. If you buy one week and sell another, but work in an un-related industry, you might be ok, unless you make tons of money at the swing/momentum trading (as you perhaps have). I guess until you get flagged, everything is ok. There was the one guy who went to court, but he made a boatload of money at it. I’m also curious if there’s a middle ground, where the CRA says your gains are not tax free, but they’ll just treat the gains as capital gains rather than business income i.e. salary.
You’re right, I’m sure the CRA doesn’t identify people who lost money in a TFSA *and* daytrade, so the CRA could award them with a capital loss or business expense. I’m sure it’s only a matter of time before someone loses big in a TFSA and goes to the CRA claiming a loss/expense. It’s an interesting topic.
Completely unrelated, the CRA does something similar for contractors vs. employees. I worked in IT as a contractor, and heard stories of the CRA going after people who worked as a contractor at one company for 20 years, and claimed the appropriate business expenses for those 20 years. If the CRA said they were employees, they disallowed all the business expenses, charged penalties, interest etc. They also had a sliding scale for this: do you have your own business cards or use the client’s? Do you have your own laptop? Do you set your own hours? Do you have more than one client? How long do you stay at one client? etc.
The TFSA and the contractor cases are interesting to consider, but are frightening if it happens to you, because it can cost a bunch of money. I buy monthly in my TFSA, and hold forever, with a bit of a re-balance every couple of years. No reason to poke the bear.
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GK says:
Hello Ales!
I am about to invest into ETFs via my TFSA account, which I never used and which is with TD Canada Trust. At the moment there is no money in my TFSA, however I do have some money on my “business” account that has a name of my incorporated company ( I am self-employed and am in a very low tax bracket and pay taxes as a self-employed, rather than an incorporated entity – that is to say that I am not even sure why I incorporated ).
Should I open another TFSA in my “business” account and connect Welthsimple to it ( thus not having to transfer the money ) , OR should I transfer money into my TFSA that is on my personal name with TD ? Just want to prevent a potential mistake.
Thank you in advance!
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Hi GK – unfortunately, corporations can not have a TFSA nor a RRSP. Corps aren’t humans, so they would never pass away for the government to get the RRSP money taxed etc. Your accounts do have to be separated between personal and corporate as well. The corporate account probably just has a non-registered (cash) trading account.
If you personally are in a low-tax bracket, then pay yourself some extra salary or dividends from the corporation and transfer the money that from the corporate account to yourself as an individual. If you were in a high tax bracket personally and you’d have to pay a lot of taxes personally to get the money from the corporation for the personal TFSA, which is usually the case, I would say to keep the money in the corporation and invest it in in the non-reg trading account there. That’s what most people do to avoid paying extra taxes personally.
Please confirm all this with your accountant. I hope that helps.
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Hi everybody, Friday, October 18, 2024 was the third Friday of the month, and an Option expiry day, so I thought I would share a real example of what I do on a monthly basis. I am just doing this very specific thing to collect extra cash, and at worst get more of stocks that I already own, and therefore like and wouldn’t mind getting more of. This is somewhat speculative, because it is short term. A partial screenshot of my tracking spreadsheet is below.
I am selling insurance to people who think a stock might go down, but who don’t want to sell their stock outright. I sell a promise to buy (called a Put option) a specific stock at the Strike Price. The promise contract expires by a specific date (shown in the Symbol column), 6 weeks out after I sell it, because I sell the first Friday of the month. My risk is having to pay more than a stock is worth at the time. If the stock is above the Strike Price, the insured person will not exercise the insurance, it Expires Worthless, and I collected the cash for free, since I was right about the stock’s movement in the 6 weeks. I do this in a margin account, so I don’t have any of the cash at risk on hand.
The amount at risk is the strike price time the number of shares (shown as contracts, where each contract is 100 shares). For NPI (Northland Power) the Strike is 20, I sold 3 contracts, so $6000 is what I am potentially on the hook for. For that insurance, I collected $137.25 in premiums, which, when annualized, is 21% return on the money at risk. That particular month, I collected $577.75 in cash right up front, for four Puts.
As you can see, I was correct on the direction of the price movement of three of the stocks, and only TD was below the Strike Price, because of an unexpected drop. On October 17, I had to pay $8000 for a stock that at the time was worth $77.86/share, and I contracted for and bought 100 shares. I overpaid by $214, partly offset by the $109.50 premium I received, so my net loss on TD was $104.50. However, since I do this in groups of 4-10 stocks every month, I try to make sure I am positive every month, and this month, despite TD, I netted $363.75, and I got one stock that I like out of it as well.
The psychology here is that I want more stocks that I already own, although I can’t afford the $29,500 (total Exposure) in a month, so I do want most, or all of the Puts, to expire worthless as the stocks go up. And no, I don’t have to come up with the $8000 either – just as I sold the Puts, I could buy them back at more than what I sold them for, still being negative by around the $104, or I could just sell the TD stock on Monday, still getting around that same loss. But I keep the stock vast majority of the time, using the Puts to accumulate stock and make extra cash.
I don’t mind paying more for a stock than it is worth at the time. If I bought it normally when it was $80 and it went down to $77.86, I wouldn’t panic and sell it, so it’s fine.
The other thing is when I sold the Put on September 9 (first column), the TD stock was actually around $82, I seem to remember, so assuming I was willing to buy the TD stock at $82, I should be happy to get it at $80.
There’s a lot to options, but I wanted to show you my developed routine. If you’re interested, I’m happy to explain more. I am using the spreadsheet to track everything to make sure I am coming out ahead over time, by the way. Last month I had every Put Expire Worthless, and then there were some bad months in 2022 when I got a lot of stocks. I am netting 4.2% on the money at risk, so an extra dividend.
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Darlene says:
Hello, we think that financial advisor institutions are grifting money from vulnerable new investors. My 80 year old mother met a financial advisor at church. The woman worked at Edward Jones, she convinced our mom to invest $5,000 which she said would grow. The advisor lost all her money and said “ oh well. the markets went down.
Our son lost $10,000 to Investors Group in his variable RRSP, either Credential Securities took it before in DSC or they transferred the money to I G or they took it. Edward Jones agent made a mistake on my husbands TFSA and it cost us $7,000 in penalties.We all filed complaints and Edward Jones said they would reimburse our penalty money if CRA did not. But we have no idea when.
These people are ripping off Canadians daily and OBSI or CIIRO does nothing to help them.
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Hi Darlene, it sounds like you had some bad experiences, probably more than your fair share. I would say the best prevention is to learn about investing and do it yourself. The younger the person is, the easier it is, as with learning anything of course. It’s relatively simple to create a portfolio of ETFs, and as the saying goes, no one will take care of your money as well as you.
Your mother may have been in inappropriate investments for her risk profile, and for when she needed the money back. Even if a market goes down, a really bad crash (like 2008 and 2020) is 30%, so I have no idea what investments the advisor bought for your mother, and lost 100%. They were probably inappropriate, and you can file a complaint, definitely.
DSCs are no longer allowed, and haven’t been for a few years, but as a consumer, your son needs to be aware of the penalties and “play the game” if he does have investments under DSC. Leaving any institution will have some sort of a fee (usually 150 to transfer out of a brokerage) but note that you can transfer assets In Kind from broker to another without selling and not trigger the DSC.
And for your husband’s TFSA, I guess he overcontributed? That’s an easy mistake, unfortunately, and the penalties are harsh. I just max out the TFSA as I go, so I know exactly how much I can contribute each year and not go over.
I think the financial advisors and brokerages do things that benefit them, since us clients is how they make money. There is more scrutiny now than ever on the bad actors (there was a CBC Marketplace documentary as well a few months ago, which I did a reaction video on – https://www.youtube.com/watch?v=I23latsho-g). The financial advisors don’t steal money from you directly, though, There’s accidents and incompetence, of course, but mostly those companies are trying to make money, and whether you make money is quite secondary.
I’ve had similar experiences as you, and I complained to the institution, their ombudsman, and finally to the regulator, and after much work, and many phone calls, I got compensation, similar to your Raymond James experience. The worst one was where I was going to sell one mutual fund (via advisor) and buy another, but the money transfer didn’t happen, and I missed out on a bunch of gains in the second fund. So I complained, and at first the advisor tried to make it out that it wasn’t his fault, but couldn’t say whose fault it was, so I went to my credit union’s ombudsman for client complaints, and got compensated.
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Financial advisors don’t make money on amounts invested below $50K. Unqualified, and incompetent maybe but grifting is a huge stretch.
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eisnerales says:
Welcome to the Canadian Money Talk Forum. Feel free to start a discussion.
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