Dividend Capture using Covered Calls

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

  1. So it's your opinion that every DITM Call will be exercised on all Dividend paying stocks???
     
    #11     Nov 25, 2009
  2. Virtually all of the calls which should be exercised do get exercised. In addition if the dividend is significant, the mm's and other professionals will do dividend lottery spreads with each other to move themselves into nearly 100% of the short open interest.

    I have outlined the dividend lottery spread tactic here many times.
     
    #12     Nov 25, 2009
  3. Calls will only be Exercised if it benefits the Market makers. But just because you do or dont get called away doesnt leave you at a loss.

    GE and WMT are easy examples of this strategy. Take GE and DITM 6month out (Jun'10) reasonably priced call. You'll see your first Dividend and keep the S-side Premium. And as time winds closer to your Exp date the market makers will decide if its worth it to them for you to keep your 2nd Dividend.

    Interesting stuff and in the cases of High Flyers I agree. Ill try and track down your Div Lottery tactic.
     
    #13     Nov 25, 2009
  4. the div is priced into the June too.
     
    #14     Nov 25, 2009
  5. I Agree...

    Just because its factored in doesnt me you cant profit from it... It goes back to your opinion, you feel that everything gets called away.

    This is why I hate Investing forums. Everything is a contention!
     
    #15     Nov 25, 2009
  6. It’s not really an opinion that the options get exercised it’s a fact of the markets efficiency. The same goes for the dividends being priced into the options. If there were additional money to be made in the dividends beyond what’s priced into the options the whole institutional world would be doing and have been doing it until it was priced out.
     
    #16     Nov 25, 2009
  7. spindr0

    spindr0

    Man I hear ya! I hate it too! Whenever I post something incorrect here, everyone gets all contentious on me!

    BTW, LO and GRMN go ex div day after tomorrow. LO is $1.00 and GRMN is 75 cts. Please show me how I can profit from the ex-div by Friday PM via writing covered calls.
     
    #17     Nov 25, 2009
  8. Spin, no problem, you'll be the only one in the market tomorrow!
     
    #18     Nov 25, 2009
  9. The most prevalent of stock pickers in the DITM Covered Calls w/ Dividend Stocks arena is Karim Rahemtulla, Chairman Mt Vernon Research
    http://www.investmentu.com/IUEL/2005/January/deep-in-the-money-covered-calls.html
    (He regularly recommends Dividend companies for his Covered Call reports from InvestmentU and Angora Inc.)

    Another reference to this widely used strategy is in Seeking alpha

    http://seekingalpha.com/article/118...n-writing-strategies-fishing-and-cutting-bait

    “I currently use in-the-money to deep-in-the-money call-write strategies with large (mostly DJIA members) dividend-paying companies”

    http://community.tradeking.com/members/tk-all-star/blogs/47494-deep-itm-options-as-a-dividend-play
    "Bottom line: don’t expect to collect four dividends from a 12-month option. But depending on the stock price relative to the strike price (that determines the option delta), your chances are good for collecting up to 3 such dividends"
     
    #19     Nov 25, 2009
  10. spindr0

    spindr0

    What's your point?

    The authors of the first 2 links stated that they like ITM covered calls on dividend paying stocks and by doing that, you can achieve a 12% anuual return. The author in the 3rd link indicated the likelihood of collecting the dividends. Wlell golly gee, everyone who owns stock on the day it goes ex-dividend GETS the dividend

    None of the info in your links has anything to do with the "free dividend" premise posed in the link that the OP provided.
     
    #20     Nov 25, 2009