When trading ex-dividend dates, be aware that dividends are awarded to holders of a stock that have ownership rights at the open of the trading day. This ex-dividend date is generally communicated to investors well in advance. On this date, you will see an automatic correction of your stock's price to reflect the distribution being made.
One way to capture dividends and hedge against the automatic distribution is to use options contracts. Previously, covered calls have been the method of choice for locking in these dividend gains. Here we see three more covered call trades.
Cheniere Energy Partners LP. (CQP) goes ex-dividend on October 30th. The payable dividend will be $0.425 per share. Using a covered call strategy, an investor could buy the shares and sell the November 2012 $22 strike price call option for $0.70. This in-the-money call option will require investors to sell their shares if they remain above the strike price on the expiration date. The potential profit from the trade is 3.9% over about 23 days, which represents an annualized return of 60.54%. The break-even for the trade is $21.16, which is a 4.9% difference to the current price.
A similar ex-dividend trade can be made with Copano Energy LLC (CPNO). The ex-dividend date for these shares is October 29th and the company plans to award a $0.575 per share dividend. Selling the November 2012 $31 strike price call option should yield an investor a 2.2% return over the next 23 days. This is 34.71% annualized. The break-even price on the trade is $30.32.
Kinder Morgan Energy Partners, L.P. (KMP) goes ex-dividend on October 29th, with a dividend of $1.26 per share. Investors should consider a $85 strike price call option with a November 2012 expiration. The potential profit on the trade is 1.9% over 23 days, or 29.2% annualized. The break-even price on the trade is $83.42 per share.
Covered call calculations were provided by the Options Industry Councilfor hypothetical purposes. Do your own due diligence before investing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.