longed a stock for the dividend, want to benefit from price movement

Discussion in 'Options' started by bmadd2402, Aug 17, 2011.

  1. bmadd2402


    I purchased an equity because it announced very good fundamental performance, as well as a "special" cash dividend. I dont see much, if any risk, other than market movement, to lose on this trade. I just want to WIN MORE! I think the price is going to fluctuate after the dividend is paid, and would like to benefit from the price movement. Problem is, I am new to all this, and dont want to lose my butt. so, can anyone help me out a bit? I was thinking a collar, or an iron condor, but dont know the limits for the strategies. guidance please?
  2. in the short term dividends are a wash. there is no free money.
  3. Other than market movement, what other risk is there in stock ownership ???

    Dividends are merely payments to yourself with your own money. No free lunch.
  4. bmadd2402


    Yeah, I meant the recent crappy macroeconomic situation as a whole. but the company is good, and gaining. I just figured there would be a way to collect the dividend and write some kind of option strategy to cover the movement of the price after the dividend is paid. I know they are not just giving away free money.
  5. That's kind of how I think about it. If you don't have anything better to do with your money than give it to me, why do I want to own you?
  6. Here's what they're giving away. As mentioned previously, with the dividend they're paying you with your own money. And to add insult to injury, now you have a taxable event and you'll have to pay taxes on your own money! What a deal!

    As you guessed, you could collar the position to lock in a P&L range but that's an exercise in futility. The spec div will be priced into the options. For ex, say it's $5. You might pay $3.50 more for the put and recive $1.50 less for the call. So it's a tax losing wash (receive $5 div, pay $5 more for the collar BUT pay taxes on the $5 div).

    A collar is equivalent to a vertical. But that's still the same problem dressed up somewhat differently in derivative's clothes.

    The short answer is: Read a book :) :)