Covered Call on Wynn, Dividend Capture Strategy

Discussion in 'Options' started by elduerino, Nov 9, 2009.

  1. Hello
    How does the strategy of writting calls on Wynn when they are having a 4$ special dividend. Using it solely as a dividend capture strategy. Do you think using the 40/45$ call will be good for a 63 dollar stock? any feedback thoughts would be great.

  2. MTE


    Are you trying to arb it or what?
  3. Yea I'm trying to arb it, and was wondering if $45 call was deep enough in the money? Or is it to close the the price, and will cause some more volatility in my returns. Thanks
  4. MTE


    Why do you think there is an arb there? Do you really think market makers are just gonna hand out free money?
  5. Same thing happened a few years back with the MSFT special dividend ($3).

    Option strike prices were adjusted accordingly, so, as was mentioned in a previous post, you can't get a free lunch.
  6. Well the bid/ask spread is pretty tight relatively to the size of the trade potential, so I don't really see how the market makers are going to try and shaft everyone. Do you know how they are going to "get me" when I try to make this trade?

    The only way that I see this happening is as the ex-dividend date comes up, they increase the bid/ask spread to 2 dollar or something.

    I'm guessing the MM are delta hedging and plan on making some last second hedging on the monday to make sure the cover their ass for the anticipated drop the next day.

    If there are holes in the plan I would appreciate any input
  7. Could you explain how you are going to "arb" it? I'm not familiar with that terminology.
  8. WYNN did this in 2006 back then they had a special 6 dollar dividend and the outstanding contracts were adjusted in strike to reflect the dividend.

    There is no such thing as a free lunch and there is no way to get the dividend without owning the stock and realizing the corresponding fall in the stock the moment the regular session ends on X div day. There is NOTHING you can do with options to capture the dividend and not realize a loss in another instrument. There is nothing different than any other special dividend situation including the MSFT special 2 dollar dividend several years ago. The OCC will most likely announce the contract adjustment before the open tomorrow.

    End of story
  9. The 40 and 45 calls have a delta of ONE. That means that whatever the stock drops, the calls will drop. When the stock goes ex-div by $4, those calls will drop $4. How are you going to make money from that?

    Now if by any chance you think that by writing those calls, when they drop by $4, it's yours to keep, think again. The calls will be adjusted to include the $4 dividend.

    If you have a different game plan, feel free to share. One thing is for sure, there are no free lunches on Wall Street. No one gives money away. IOW, if it looks too good to be true, it is.
  10. I got a free lunch once in wall street.

    It was pretty good actually.
    #10     Nov 9, 2009