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Blog by Trusha Desai aka Trusha Pandit

  • Writer's pictureTrusha Desai

Buy or sell call options: a strategy for sophisticated investors

Chart copyright Trusha Desai Innovation Management Inc.

Buying a call option is an effective investment strategy in a bullish market. However, are we always certain of the direction of the market or the underlying? Even if we study the fundamentals and technical, read the insider reports, estimate the earnings, trend the dividend growth and peruse the analysis reports for good measure, there is no certainty in life. I guess Warren Buffett will definitely tell you that, for Berkshire Hathaway does not go up every day. If it did, it would hit the roof and aim for Jupiter.

If we own the underlying, a vanilla call strategy might be optimistic. However, in this strategy, are we going to cover in the money or out of the money? If we are too close to the underlying for comfort, or if the underlying’s stock price exceeds the strike price at some point before expiration, there is the threat of being assigned. Unless being assigned is part of our investment strategy, it is essential that we monitor our underlying’s price regularly. It is essential that we exit our vanilla option before that becomes an expensive proposition.

Therefore, we can safely state that a vanilla option is not for everyone. If we do not wish to get an apoplectic fit, we may wish to stay away from vanilla. If we are more sophisticated investors, we may choose to strangle or straddle or simply butterfly. However, if we have not studied these strategies in detail, we may stick to the tried and trusty “buy-and-hold” and live off the quarterly dividends … for it may be the only “safe” strategy we could pursue. Of course, we can invest in gold, we can invest in futures, or simply real estate: all of these strategies have different risk ratios, of which we must be aware. Perhaps, stashing the cash may be the only consideration if our risk aversion has boundaries. Please be aware that propensity to risk should decrease with age: that is, risk and age must be inversely correlated.

Along with accounting, GST, year-end, personal taxes (focusing on extensive Capital Gains schedules), QuickBooks, Sage 50 etcetera, I also do investment analysis. I am available to give you a second opinion on your investments.

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  • Writer's pictureTrusha Desai

Updated: Feb 20

If you have an investment strategy of buying calls, it suggests that you are bullish on the stock. What would your strike price be? What would your expiration date be? Keeping in mind the Greeks, such as theta (time value) and our understanding thereof, we may decide to buy calls that expire three months, six months or a year from the current date. We needs must remember that call options that have a twelve-month expiration period maybe expensive.

When we think of such longish expiration periods, we wonder what is the reasoning and rationale behind weekly options? Who would ever buy weekly calls? Or do they write weekly covered calls?

When we attempt to study the volume and open interest of option trades, we are unable to decipher without stock trader backing whether the day’s volume focused on purchase or sale of the option under consideration. We can study the volume of a stock and estimate whether the stock was overwhelming bought or sold at particular periods of the day. There are even more sophisticated investment instruments available that will advise us of the dollar volume being traded during differing periods of the day. This information is not readily available for options.

Therefore, when we attempt to invest after-tax income in options, we must remember that our investment may result in a complete loss. We may be marginally fortunate if we walk away with a minimal loss if we perceive that our anticipated bull has turned into a bear for psychological, emotional, financial or economic reasons. Moreover, unlike securities which may provide us with a steady(?) dividend income, no dividend income is obtainable from stock options.

I do extensive investment analysis of your portfolio. I also provide a second opinion on your investments after analysis. I have long-term experience in preparing convoluted capital gains (losses) schedules for taxation purposes.

Please reach out for your professional bookkeeping, payroll, management consulting, capital gains, personal and corporate tax requirements to me

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  • Writer's pictureTrusha Desai

Bookkeeping, GST, cash flow, QuickBooks

As we are almost at the six-month mark of 2016, we can look at the past fifteen years of this millennium, and pause: did the hype of the year 2000 and all its resultant technological ramifications come to pass? Or did we just wing it, thanks to the like of Microsoft, Google and hundreds of thousands of computer programmers around the world?

Perhaps this is why we need to put pause on our worries for tomorrow. What we really need to do is plan, target, and achieve. It may not be necessary to achieve all that we targeted or planned, but it probably moves us from the stationary position. Once we have momentum, we can gain acceleration. Therefore, when the Federal Reserve’s Chair, Janet Yellen announces today that companies are making fewer investments while there is a lukewarm economic prognosis, interest rates will be held steady, we need to understand how a tepid economy will affect us directly.

How does that affect us on a micro-level? We might decide to sock away that mason jar of change into an interest-bearing savings account for year-end and religious festivities. Or we may decide to stash away that extra chunk of change in our chequing account into a savings account for tax liabilities. Or we may decide on (yet another) staycation this summer. Or else, we may simply do a reverse mortgage (if we are fortunate enough to hold real estate) or draw on that line of credit or carry our credit card balance to the max. This is when we realize that cash flow on a personal and business level is an extremely sticky phenomenon and we must siphon a few months’ cash requirements in a touch-me-not account.

In as brief a manner as possible, I would like to state that I am a Certified QuickBooks ProAdvisor, I have experience in porting various software to QuickBooks Online. I can obtain a wholesale rate for you, should you decide to switch. I am highly proficient at other software too. I specialize in year-end reconciliation, GST reporting and payroll. I can assist with your investment analysis, provide a second opinion on your investments. I do strategize innovatively so that your business can flourish. And yes, cash flow is my business. I specialize in cash flow management and forecasting.

I do hope that today’s blog will prompt you to peek at my website and we may strike a mutually symbiotic professional relationship.

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