Discussion in 'Trading' started by stock777, Aug 3, 2011.
hows that plan working for ya this month?
Markets are volatile, they go up and down all the time.
SP500 is red for the year if you load up on good dividend companies tomorrow, chances are you will see some very good profits in the near future. Definitely by years end when the Christmas Rally gets everyone going.
Look around you, there's only one place to invest these days, and that's the equity markets.
What about insuring using a Collar, I found that the collar cost would be about 35-40%, then load up on a REIT dividend stock and get 10%. Anyone tried this?
that 4% divvie is sweet aint it?
What are the typical margin requirements for a collar?
For example if I want a short collar on the SPY: (sell 1000 shares), buy 10 calls and sell 10 puts, how much would I need in my account? Enough to short 1000 SPY shares or enough to cover the max loss of the position--which is substantially less?
Well depending on the strikes but heres an example 10 strikes OTM for call and put.
just think, your divvie is now even better!!!!!!!!!!
hope all your names go to $1 for huge returns!!!!!!!!
14.5% x 60% = 8.7% / year, almost twice with margin. 15-16%
Presenting the Dividend Timing Collar. I think the author forgets that a) options already price in any dividends; and 2) the stock price falls by the divvy amount the day after ex-. I think he somehow thinks he can magically be on record on ex-div day but still void the price drop. Or something, it's poorly written.
Using the Dividend Timing Collar in Options Trading
By Michael Thomsett Aug 04, 2011 10:45 am
Dividend yield all too often is overlooked by options traders. However, dividends may represent a significant portion of total return. There is one system that reduces market risk while converting dividend yield into double digits. The dividend timing collar requires maintenance but can create a very attractive level of net return.
The strategy involves several pieces:
1. Ownership of 100 shares of stock for each increment of the collar.
2. Opening a collar, a short call, and a long put.
3. Timing the strategy so the trader is stockholder of record right before the ex-dividend date.
Each of these pieces requires careful timing and selection. To work best, both options should be scheduled to expire within less than one month. This is so because the strategy works best if the call and put are either closed, exercised, or expired as quickly as possible (specifically, before the ex-date of the following month).
This strategy accepts exercise of the call if stock prices rise, and enables the trader to exercise the put and dispose of shares if the stock price falls. Either outcome is break-even or profitable as long as options are selected properly. The ideal situation is to open options at the money or with strikes as close as possible to current price.
The cost of the put should be mostly covered by income from the call. It may even create a small net credit in some cases.
The strategy can be repeated every month (or even more often). In the one-month approach, the trader needs three stocks. Each one has ex-date in a different month. So the dividend timing collar is opened in January right before ex-date and using January-expiring options. The stock will be exercised away via the short call or the long put, or closed by the end of the month at break-even or better. This frees up the same capital to next open a February collar right before the February ex-date. This is continued month after month.
The net effect is that stock is held only long enough to earn the quarterly dividend. So assuming all three stocks earn 4% per year, this translates to a quarterly return of 1%, each and every month. Annual return is then 12%.
The market risk is completely eliminated as well. If the stock price rises, shares are called away by exercise of the short call. If the stock price falls, the trader exercises the put and disposes of shares at the putâs strike.
What can go wrong? The call could be exercised before ex-date, meaning the trader loses shares and the dividend income. At this point, the call ceases to exist and the trader is left with a no-cost or low-cost long put. There is also the occasional lost opportunity cost if and when share price rises significantly above the callâs strike. However, this is not a stock or option strategy by itself; it is a strategy designed to achieve three goals: (1) elimination of market risk in the long stock, (2) opening of option positions at little or no cost, and (3) creation of double-digit annual return from dividend yield.
The beauty of this strategy is that it allows traders to chase high dividend yield without having to worry about stock volatility. In this strategy, high volatility in either direction is an advantage. Traders want to own stock to earn dividends, and then get out and go to the next position.
The puts when dividend are baked in is very expensive I cannot find a Collar where the calls pays much of the put, do you have an example, where to put the strike prices etc.
Isnt there also abit of price risk between stock price and the put strike price?
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