Richard Croft, president of RN Croft Financial Group

Focus: Options and ETFs
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MARKET OUTLOOK
I remain bullish on the U.S. economy and, by extension, Canada — but not because of policies that U.S. President Trump may get through Congress. Trump’s tax reform will not likely occur until 2018. Infrastructure spending will probably get through because it meets the goals of both parties, as will a reduced tax on repatriated capital. While these factors would be positive, they will not be the major propellant for U.S. equities. The market will likely remain on solid ground because earnings look good and interest rates will not rise significantly. There will perhaps be one more hike in 2017 and another hike in 2018 — nothing that would curtail growth.

Canada will not be seriously hurt by a re-negotiation of NAFTA because I believe Trump’s bark is far worse than his bite. He will get a deal that may not be a huge benefit to Canada, but given expectations for a growing U.S. economy, I doubt it will be that damaging. In the end, Trump can make the case that he got a better deal and given his desire for adulation from his peers, that may be enough to satisfy his political motivations.

TOP PICKS

Richard Croft's Top Picks

Richard Croft, president of RN Croft Financial Group, shares his top picks: iShares 20+ year Treasury Bond ETF (bear call spread); BMO Put Write ETF (buy at $19.02); and BCE (covered call).

ISHARES 20+YEAR TREASURY BOND ETF (TLT.US) – BEAR CALL SPREAD

  • Sell TLT Dec 126 calls: US$3.60
  • Buy TLT Dec 135 calls: US$1.10
  • Net Per Share Credit: US$2.50

This is a way to profit from a rise in interest rates. The idea is that TLT will decline in price as interest rates rise. The sale of the TLT Dec 126 call will expire and be worthless if TLT closes below $126 on December 15, 2017 (the expiration date). We are also buying a TLT December 135 call to hedge our bets. If interest rates were to decline TLT would rise, but the maximum loss on this position would occur at $135 per share value for TLT. The position generates an immediate credit in your account of $2.50 per share, which is the difference between the premium received from the sale of the TLT Dec 126 call less the cost of buying the TLT Dec 135 call. 

BMO PUT WRITE ETF (ZPW.TO) – BUY AT $19.02
This ETF writes puts on a basket of U.S. securities and maintains sufficient cash to meet the obligations should the puts be assigned. Since this is a non-leveraged play on the U.S. market, it should generate similar returns to a covered call strategy.

BCE (BCE.TO) – COVERED CALL

  • Buy: BCE at $59.32
  • Sell: BCE December 60 calls at $1.25

This is a low-risk covered call. If BCE closes above $60 in December 2016, the return will be 7.3 per cent including dividends. The return if unchanged is 6.08 per cent including dividends.
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TLT N N Y
ZPW N N Y
BCE Y N Y


PAST PICKS: MAY 10, 2016

Richard Croft's Past Picks

Richard Croft, president of RN Croft Financial Group, reviews his past picks: Orbcomm - Long Jan. 25 Calls; Goldcorp Covered Straddle - Sell Oct. 24 Call & Put; and Square Covered Straddle - Sell Sept. 10 Call & Put.

ORBCOMM (ORBC.O) – LONG JAN. 25 CALLS

  • Recommended at: $9.30
  • Now: $11.27
  • Profit: $1.97
  • Total Return: 21%

GOLDCORP COVERED STRADDLE (G.TO) – SELL OCT. 24 CALL & PUT

  • Net Per Share Profit Credit: $18.42
  • Net Per Share Profit Debit: $17.36
  • Profit: -$1.06
  • Total Return: -6%

SQUARE COVERED STRADDLE (SQ.N) – SELL SEPT. 10 CALL & PUT

  • Net Per Share Profit Credit: $6.80
  • Net Per Share Profit Debit: $10.00
  • Profit: $3.20
  • Total Return: 47%

TOTAL RETURN AVERAGE: 20.83%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
ORBC N N Y
G N N Y
SQ N N Y