Using Options To Capture Dividends From 6 Stocks

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Includes: AINV, BKCC, BR, MCGC, SLRC, TICC
by: Robert Weinstein

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 return. This is especially true in lower yielding stocks.

MCG Capital Corporation (NASDAQ:MCGC) Yield: 14.98%

  • Dividend Amount: $0.17
  • Ex-Dividend Date: September 12, 2011
  • Beta: 2.33

Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the September $2.50 strike call for $0.00 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option near break even.

In the last month, the stock has decreased in price -18.49 %, with a one year change of -11.50%.
Comparing to the S&P 500 price changes, the price performances are -10.49% vs. the S&P 500 from a month ago, and year to date difference is -30.38% vs. the S&P 500 price change.

Solar Capital Ltd. (NASDAQ:SLRC) Yield: 10.92%

  • Dividend Amount: $0.60
  • Ex-Dividend Date: September 16, 2011

Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the September $22.50 strike call for $0.00 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option near break even.

In the last month, the stock has decreased in price -4.60 %, with a one year change of 13.12%.
Comparing to the S&P 500 price changes, the price performances are 4.77% vs. the S&P 500 from a month ago, and year to date difference is -5.20% vs. the S&P 500 price change.

Apollo Investment Corp. (NASDAQ:AINV) Yield: 13.22%

  • Dividend Amount: $0.28
  • Ex-Dividend Date: September 13, 2011
  • Beta: 1.77

Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the September $9.00 strike call for $0.00 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option near break even.

In the last month, the stock has decreased in price -11.59 %, with a one year change of -7.73%.
Comparing to the S&P 500 price changes, the price performances are -2.91% vs. the S&P 500 from a month ago, and year to date difference is -18.23% vs. the S&P 500 price change.

Blackrock Kelso Capital Corp. (NASDAQ:BKCC) Yield: 12.41%

  • Dividend Amount: $0.26
  • Ex-Dividend Date: September 15, 2011
  • Beta: 1.45

Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the September $7.50 strike call for $0.10 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option near break even.

In the last month, the stock has decreased in price -2.90 %, with a one year change of -21.17%.
Comparing to the S&P 500 price changes, the price performances are 6.63% vs. the S&P 500 from a month ago, and year to date difference is -19.02% vs. the S&P 500 price change.

TICC Capital Corp. (NASDAQ:TICC) Yield: 11.15%

  • Dividend Amount: $0.25
  • Ex-Dividend Date: September 14, 2011
  • Beta: 1.13

Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the September $7.50 strike call for $0.10 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option near break even.

In the last month, the stock has decreased in price -0.11 %, with a one year change of -0.44%.
Comparing to the S&P 500 price changes, the price performances are 9.70% vs. the S&P 500 from a month ago, and year to date difference is -14.48% vs. the S&P 500 price change.

Broadridge Financial Solutions, (NYSE:BR) Yield: 3.15%

  • Dividend Amount: $0.16
  • Ex-Dividend Date: September 13, 2011
  • Beta: 0.73

Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the September $20.00 strike call for $0.36 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near $0.04.

Looking at the price movement over the last month, the stock has fallen in price -11.88 %, with a one year change of -0.88%.
Comparing to the S&P 500 price changes, the price performances are -3.23% vs. the S&P 500 from a month ago, and year to date difference is -0.97% 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.

My last step (completed before making a trade on the same day) is to check company announcements, and news sources for possible events that may cause the stock price to move. This is especially important during earnings season.

I research the different call options and calculate the expected probabilities based on Beta, Bid, Offer, Volume traded the current day, open interest, and time value / implied volatility. The Options offer some level of protection from down moves in the stock, and provide revenue to cover the times that the options do not fully cover down moves in the stock. Income is not needed from the option Premiums, so a break even from premiums received/stock losses ratio is a win.

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 advice, 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, and Yahoo Finance for most of my data.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MCGC, SLRC, AINV over the next 72 hours.