Update for the Encana position. Yesterday I read about ECA's CEO wanting to do something radical with the company, which can include cutting the dividend once again and analysis believe that it may be cut in half (from 20 cents to 10 cents). Even though the company has strong cash flows and the current payout ratio is around 28% which isn't that high when compared it to other companies. For this TFSA position in Encana I can handle political risks (US budgeting/ debt ceilings, etc)  but, having a CEO wanting to be radical is a little too much and it'll making it difficult to project a forward share price.

There are a number of choices that are before me.
A) Do nothing (the easiest choice)

B) Sell at the current price, as of writing this update the share price has jumped up from earlier this morning and is now trading at $18.83 (up 2.4%). If I sold here I would have a small loss of 32 cents per share or $180 (net). Still won't be a bad return for the year on this position, roughly 12%.

C) Sell a covered call that is in the money. Looking at what is available, I see, the April $17 options on the Montreal exchange as a good hold at this time with the option premium at $2.10. By taking this position I am locking in the total return of $19.10 per share and it would be called away if the share price remains over $17. The covered call caps me upper end due to the contract price.
To protect my position from a (possible) halving of the dividend in the near term. I believe it to be prudent to buy a Put option. On the Montreal exchange, the January $17 options are trading at .37 cents per share. By buying this position it'll protect my Encana shares from a decline in it's share price (under $17). If we compare it to the cutting of the dividend in 2009, which was in half (40 cents to 20 cents), the share price followed and it too was halved in short order. At 37 cents for the Put premium I believe that this low price gives reasonable protection if the shares of ECA are sliced in half again following a dividend cut. But this all depends if ECA's CEO makes that move to cut a portion of the dividend.

Which of the three would you choose?

I have chosen to follow C) I have completed both the sell (call) and the buy (put) today.

I had sold ECA Apr Call, $17 and collected the premium of $2.10 per share, netting $1033.76
And buying ECA Jan Put, $17 and paid the premium of .37 cent each, $201.24 (net)

As of this update I have collected to date $304.80 in dividends and $1792.56 in option premiums. For a total of $2097.36 (net) this works out to 21.88 %.
The percent showing is of today, it will be different if I hold both open options till January and April expiries.

Update on the October Encana (ECA) option trade. Today I bought to close (BTC) the October option trade.

The cost of doing so was $41.24 (net), by buying back this option at .05 cent plus commission. ignoring the commission at this point allowed me to capture roughly 92% of the premium. As this option contract expires next Friday (Oct 19th) I felt that, with analysts raising their outlook for 2014's average natural gas price to $4.30 from $3.70 plus analysts this past week raised their target price of ECA to $22 per share over the next 12 months. We'll need to see if that'll materialize in the future as I still suspect that the $20.50 technical level will still be the top for this stock but, lets see what the market ends up doing.

If you're following ECA you would have noticed that ECA has had a really strong run this week as Monday the share price had a low of $17.57 and now has run up to $18.31 roughly 4% for the week. As on Monday I was expecting ECA share price to test the lower band range of $17.50 which it had gotten close to before rebounding back. I was also ready to purchase another 100 shares if it broke the 10% rule as set out in my guidelines.

Income and return for ECA this year is $304.80 in dividends and $960.04 from writing of covered call options, for a total of 1264.84 (net) or 13.19%.

Looking forward into next week, I'll be looking to sell another call option in either November or December expiry as the December option chains aren't listed yet and I'll be looking for the best price for my shares. Maybe Monday ECA will jump another 30 cents.  I'll keep you posted on my next option trade.

Till then happy trading.