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By, Robert Weinstein

Many high quality companies offer quarterly dividends to investors. Dividends may be a great source of income and with each dividend payment received; shareholders are able to lower their cost in an investment. The most important requirement to receive a dividend is to be a shareholder on the required day of record.

Using call options for hedging is one of my favorite and easy to understand methods of capturing gains through options and dividends. This method can be used to capture more than one option by holding longer than three months.

Cisco Systems, Inc. (NASDAQ:CSCO) is the worldwide leader in networking for the Internet. The company was founded in 1984 and is headquartered in San Jose, California.

Yield: 2.86%

Dividend Amount: 14 cents

Ex-Dividend Date: October 2, 2012

Beta: 1.26

Strategy: Buy Cisco Systems stock and offer to sell the October $19.00 strike or lower call for 54 cents over the intrinsic value.

The option may get exercised early for a gain. In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near 16 cents, plus dividend.

Cisco Systems upcoming stock dividend appears to be attractive and worth the time and effort to capture. A requirement I have is 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 object to an early exercise notice (which does happen from time to time, but profitable if everything is done according to plan).

It is important to sell the call option hedge at or near the asking price for at least the minimum amount over intrinsic value. I don't want the option hedge unless the sale will provide at least the minimum 54 cents over intrinsic value.

If my shares are called away before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 54 cents. The most I can make is 68 cents if I hold the covered call through option expiration day and the stock gets called away.

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

I use a proprietary blend of technical analysis, financial crowd behavior and fundamentals in my short-term trades, albeit not totally the same in longer swing trades to investments, the concepts used are similar. You may want to use this article as a starting point of your own research with your financial planner.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.