Our remaining open long put on TransCanada (TSX: TRP, NYSE: TRP) with a strike price of $58 unfortunately expired worthless on October 21, registering our first trading loss since inception of the options service. As luck would have it, the company announced a huge share issue on November 1, which promptly caused the share price to drop sharply and below our put option strike price. Unfortunately this came a few days too late for us to profit from the price movement.

Our two long put option trades on CAE Inc. (TSX: CAE, NYSE: CAE) and TSX Group (TSX: X, OTC: TMXXF) initiated last month are serving the stated purpose of protecting against downside risk for shareholders, but the options are fast losing time value as the expiry date nears. Recent results from both companies also looked solid, so we will just let the options run out rather than rolling them over to a later-dated expiry. Against the put options, holders of the underlying stocks had some capital appreciation which would have offset the option premiums.

For November, we are recommending a speculative long call option on a relatively volatile stock. Hold on to your hats – the ride may be wild!

Ready for Liftoff?

Investment thesis: WestJet Airlines (TSX: WJA, OTC: WJAVF) is a low-cost Canadian airline with an outstanding track record of profitable growth. The stock recently came under the whip as the federal government announced its intention to allow foreign investors to take a larger stake in Canadian airlines. Investors considered the move as a sign that the main local airlines, WestJet and Air Canada, will face increasing competition as foreign investors may become more interested in funding competing operators. We believe that the share price weakness in WestJet is overdone, and that the current low valuation adequately compensates for the business risks including additional competition. Recent results were solid an indicative of an improving operating environment for the airline.

Option Strategy: Buy to open a call option with a strike price of C$21 with expiry on 21 April 2017 at or below C$130 per option (C$1.30 x 100).

Payoff Profile: The breakeven share price at expiry is $22.30. A share price at expiry below the breakeven price will result in a total loss of the option premium, while a share price above will result in a profit. With a share price at $25.50 on expiry, the gain will be 246%.