Dividend Capture using Covered Calls

Discussion in 'Options' started by scottiet, Nov 24, 2009.

  1. scottiet

    scottiet

  2. I'm a n00b, but I think the call is adjusted for the dividend - meaning the premium you collect is lower to begin with.

    Otherwise this would be a free meal, which I somehow don't think exists.
     
  3. Dividend DITM Covered Calls do hold water.

    See Smart Options E-Report: Issue 155

    Most Dividend DITM CCalls are @ a 6 month hold spanning two Div payouts dates.

    The hope is the market makers see the probabilities that your CCalls are such a low 2%-3% probability and the market makers will then exercise the stock away from you. IE... they wont let you keep your 2nd Div Payout. So 10%-20% returns in 3 months. But of course it all hinges on someone calling the shares away early... By Calling away early you collect the Premium and 1st Div Payout in, lets say, two-three months of holding.
     
  4. nOOb scores the point. The author of the article is wrong. The ITM call will not drop the amount of the dividend.

    Your 2nd point is for noting that there are no free lunches. If this was feasible, everyone in the world would do it on every dividend paying stock in existence and ignore everything else.

    :)
     
  5. MTE

    MTE

    Dividends are priced in. There's no free lunch!

    It's amazing how many people think that there's some free money to be made in something as basic as a dividend or a put-call parity. In fact, there's some irony in this - by chasing free money these people actually hand out free money to market makers and other professional traders.
     
  6. Whoever wrote that piece should be fired. As others have said the dividend is priced into the call and you won’t be collecting it one way or another.
     
  7. Execution of the trade in the article was wrong. But the strategy is great if it's stretched out. Very feasible if you have Div DITM CCall 6month strategy covering two payouts. And Many Conservative traders play this strategy exclusively. Easy @ 5% return for only 3month holds usually. 20% yrly
     
  8. Can you expand on that idea? You caught my attention!
     
  9. DITM calls will be exercised on you prior to ex div you can bank on it. There is no easy 5% laying on the table.
     
  10.  
    #10     Nov 25, 2009