Hey, don't blame me just because you never heard of dividend collars: https://seekingalpha.com/instablog/...returns-and-low-risk-combined-in-one-strategy http://www.wyattresearch.com/article/dividend-collar/ http://www.minyanville.com/investin...ividend-timing-collar-stock/8/4/2011/id/36134
These weren't dividend collars - they were conversions and not risk free and you - of course - are ignoring addressing the pin risk issue. It's the compensation for the return
Collar is with different strikes. Collars have risk, since they are in different strikes... You're very good in selective reading....
TDAmeritrade calls them collars, if it is good for them, it is good for me, as long as we mean the same. Now if you want we can call them fenceless collars, because it is a zero fence set up. More importantly though, yesterday I tried it out with real money. AT&T had a juicy dividend coming this morning (49 cents), so I bought the 39.5 collar for 39.8 (plus 0.02 for com.) So my instant loss on 1K shares was $320, but that was going to be sweatened by a $490 dividend, assuming my stocks are not called away. They weren't. This morning I closed out the position, screwing it up a little by not playing the sides. Nevertheless I got eventually a $50 pretty much riskless profit. I should have got, $80-90, again my bad (missed out on 4 cents). Sure, some of the pumpkins here will cry about the small amount of profit, but this was just a test drive using real money to prove a concept. And %-wise it wasn't bad at all. $90 return on a 40K capital is 0.2% daily profit. How would you like to get that on your retirement account? Yesterday there were 4 stocks to choose from and during the week there was at least one more set up. Do the math, twice a week playing this, what would be the annual return? (20%) Now, can I get my lollipop?
I bought 1K stocks and ten 39.5 puts and the same time sold ten 39.5 calls for $39,842 yesterday, when the stock was at 39.9... (Ameritrade calls this a collar with stock) Overnight we got $490 in dividend (for 1K stocks) and the stock opened down with a dividend gap. The calls were pretty much worthless, a few cents, the puts protected and locked in my stock price to 39.5... Today I closed the position a little hastily for 39400. Thus the loss was $442, but in 2 weeks I will get $490 in dividends, thus eventually profiting about $50. Had I waited 10 minutes more for a better fill when the options settled after the open, I could have made 3-4 cents more, profiting $80-90 on the whole deal, without much risk... Yesterday there were 4 candidates for this kind of trade: T, VZ, GIS and APD Pretty much getting the fill when setting this up tells you how it will work out.(projected profits) If next day the price stays above the strike, you just let the stocks go because of the short calls, and save some on commission. There is actually a book written about this, although the author cheated because, well read the reviews. Nevertheless I didn't cheat and it did work with real money... Options for Risk-Free Portfolios: Profiting with Dividend Collar Startegies amazon.com/Options-Risk-Free-Portfolios-Profiting-Strategies-ebook/dp/B00CBWSSGI/ref=sr_1_3?ie=UTF8&qid=1507324375&sr=8-3&keywords=option+for+dividend The real question is, just how often can this be repeated in a year?
So it's not really riskless right? There is a dividend gamma that you are explicitly short. What was your plan for this morning if the call was early-Xed? PS. "There are no free lunches, there are only cheap lunches!" (c) myself. It's a fairly common thing to see "risk-free" money, but there is almost always some sort of an asymmetric risk that you are taking. In this case, it's pretty apparent, but in some cases it's very obscure and it takes a kick to the testicles to understand that "it was not an arbitrage after all".
That would have been for yesterday, and I would have sold the puts right away. Also you can avoid such risk by going further out in time. The author of the book advocated the calls being longer term than the puts. The problem with that is that you still have to buy the calls back. It is better to go with both options at the same expiry... As for margin, I used all my money. But using this: http://www.investopedia.com/ask/answers/07/margin_interest.asp 40K with 6% interest for a day= 40000 x 0.06 / 360= $6.66 so ~ $7 So let's say I also use full margin, for an extra $7 cost, I could have made another $80 (well 73) So, the daily return WITH margin would have been $153 on 40K, or 0.38%.