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Long/short equity, contrarian, short-term horizon, dividend investing
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There are many dividend capturing strategies, and I have used more than one. In this article we will go over a few stocks that have upcoming dividends that can be captured at a minimum amount of risk. The criteria that I use is that I must be able to sell a call option in either the front, or first back month that is in the money, and with enough premium that I will not mind getting exercised early (which happens often and can be a good thing if the trades are executed correctly).

This is one of my favorite and easy to understand methods of making gains through options and dividends. Although much of the gains will come from dividends, it should be noted in my experience, the option decay can provide a greater return. This is especially true in lower yielding stocks.

Lorillard Inc. (NYSE:LO): Yield: 4.77%
Dividend Amount: $1.30
Ex-Dividend Date: Tuesday, August 30

Strategy:

In combination with buying the stock, sell the September $105 strike call for $1.05 over the intrinsic value. The option may get exercised early on August 29th for a gain of $1.05 or after qualifying for dividend, offer to cover position with a premium of $1.20 over intrinsic value.

In the last month, the stock has increased in price 3.30%, with a one year change of 39.81%. Comparing to the S&P 500 price changes, the price performances are 15.90% vs. the S&P 500 from a month ago, and year to date difference is 44.24% vs. the S&P 500 price change.

Lockheed Martin Corporation (NYSE:LMT): Yield: 4.16%
Dividend Amount: $0.75
Ex-Dividend Date: Tuesday, August 30
Beta: 0.94

Strategy:

In combination with buying the stock, sell the September $70 strike call for $0.50 over the intrinsic value. The option may get exercised early on August 29th for a gain of $.50. If not, after qualifying for dividend, offer to cover position with a premium of $.50 over intrinsic value.

Looking at the price movement over the last month, the stock has fallen in price -4.32%, with a one year change of 0.52%. Comparing to the S&P 500 price changes, the price performances are 7.35% vs. the S&P 500 from a month ago, and year to date difference is 11.79% vs. the S&P 500.

M&T Bank Corporation (NYSE:MTB): Yield: 3.83%
Dividend Amount: $0.7 0
Ex-Dividend Date: Tuesday, August 30
Beta: 0.81

Strategy:

In combination with buying the stock, sell the September $70 strike call for $0.75 over the intrinsic value. The option may get exercised early. If not, after qualifying for dividend, offer to cover position with a premium of $0.80over intrinsic value.

In the last month, the stock has decreased in price -15.25%, with a one year change of -15.72%. Comparing to the S&P 500 price changes, the price performances are -4.91% vs. the S&P 500 from a month ago, and year to date difference is -8.83% vs. the S&P 500 price change.

Weyerhaeuser Company (NYSE:WY): Yield: 3.69%
Dividend Amount: $0.15
Ex-Dividend Date: Tuesday, August 30
Beta: 1.49

Strategy:

In combination with buying the stock, sell the September $16 strike call for $1.15 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, offer to cover position with a premium of $1.15 over intrinsic value.

Looking at the price movement over the last month, the stock has fallen in price -19.00%, with a one year change of 3.70%. Comparing to the S&P 500 price changes, the price performances are -9.12% vs. the S&P 500 from a month ago, and year to date difference is -6.93% vs. the S&P 500 price change.

Kellogg Company (NYSE:K): Yield: 3.26%
Dividend Amount: $0.43
Ex-Dividend Date: Tuesday, August 30
Beta: 0.47

Strategy:

In combination with buying the stock, sell the September $52.50 strike call for $0.60 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, offer to cover position with a premium of $0.65 over intrinsic value.

Looking at the price movement over the last month, the stock has fallen in price -5.43%, with a one year change of 6.43%. Comparing to the S&P 500 price changes, the price performances are 6.10% vs. the S&P 500 from a month ago, and year to date difference is 12.12% vs. the S&P 500 price change.

Northeast Utilities System (NYSE:NU): Yield: 3.24%
Dividend Amount: $0.28
Ex-Dividend Date: Tuesday, August 30
Beta: 0.50

Strategy:

In combination with buying the stock, sell the September $30 strike call for $0.30 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, offer to cover position with a premium of $0.20 over intrinsic value.

In the last month, the stock has decreased in price -1.77%, with a one year change of 17.30%. Comparing to the S&P 500 price changes, the price performances are 10.21% vs. the S&P 500 from a month ago, and year to date difference is 15.36% vs. the S&P 500 price change.

The Home Depot, Inc. (NYSE:HD): Yield: 2.96%
Dividend Amount: $0.25
Ex-Dividend Date: Tuesday, August 30
Beta: 0.76

Strategy:

In combination with buying the stock, sell the September $33 strike call for $0.50 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, offer to cover position with a premium of $0.45 over intrinsic value.

Looking at the price movement over the last month, the stock has fallen in price -3.73%, with a one year change of 19.45%. Comparing to the S&P 500 price changes, the price performances are 8.01% vs. the S&P 500 from a month ago, and year to date difference is 4.71% vs. the S&P 500 price change.

McDonald's Corporation (NYSE:MCD): Yield: 2.75%
Dividend Amount: $0.61
Ex-Dividend Date: Tuesday, August 30
Beta: 0.46

Strategy:

In combination with buying the stock, sell the September $90 strike call for $1.35 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, offer to cover position with a premium of $1.35 over intrinsic value.

In the last month, the stock has increased in price 2.22%, with a one year change of 21.21%. Comparing to the S&P 500 price changes, the price performances are 14.69% vs. the S&P 500 from a month ago, and year to date difference is 25.37% vs. the S&P 500 price change.

Remember, you must buy a stock at least three business days before the record date (at least one business day before the ex-dividend date) to qualify for a dividend.

This article should only be considered educational, and not used for trading in isolation. I am not suggesting anyone else follow what may be appropriate for me. This is not a "sure thing" and risk is involved. A good example of what can happen is when BP after declaring a dividend, pulled it back before payment. The stock tanked for months. I don't expect to be able to sell options in every case and I will not move on the minimum premium needed. Using options only partially hedges risk, but offers little protection from "fat-tail" events (also known as black swans).

I use a proprietary blend of technical analysis, financial crowd behavior, and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. Nothing in the article should be considered investment advise, but you may want to use this article as a starting point of your own research with your financial planner. I use Seeking Alpha, Edgar Online, Google Finance, MSN Money, cnbc.com, Zacks and Yahoo Finance for most of my data.

Source: Using Options To Capture Dividends And Gains