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  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    richjoy - your compliments and comments are much appreciated. Apologies that it has taken so long to respond to your comment.

    First, to clarify, you get to keep the option premium regardless of whether or not the option is exercised...so it is definitely "incremental" income for you.

    We include pro-rata dividends in the calculation of Upside Profit because we assume that the stock is called away at expiration (in which case you would in fact receive your dividend payments over the option term). It would probably be less confusing if we called it "Maximum Upside Profit" instead (or maybe use an Upside Profit Range). Theoretically, the stocked could get called away at any point during the term of the option, so actual Upside Profit could vary.

    Also, option strike prices do not adjust for dividend payments, which is in the favor of the option seller. Obviously, when a stock goes ex-dividend the price typically declines by the dividend amount. As such, the option declines in value as well because the stock price is now further from the strike price (lowering the probability that your stock will get called away).

    As far as including dividends in the calculation of Margin of Safety, we feel that this is very appropriate since the likelihood of the stock getting called away decreases exponentially as the stock declines.

    Hope this helps. Let us know if you have any other questions..
    Mar 28, 2012. 02:40 AM | Likes Like |Link to Comment
  • Seeking Alpha Passes One Million Members -- 5 Things You Need To Know [View article]
    We feel very fortunate to be a part of this success story...keep up the great work! SA rocks!
    Mar 26, 2012. 04:22 AM | 1 Like Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    You are correct, Acuity. A covered call strategy is in essence a hedging strategy...and it's definitely not a strategy for maximizing return if the market has a significant move to the upside. There I'd definitely a risk/reward tradeoff here...
    Mar 25, 2012. 11:28 AM | Likes Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    Thanks for the comments IncomeYield and DVK. To be fair, the article states that a covered call strategy can enhance the total return of the investment by adding another income component (independent of the dividend). So we are actually on the same page here...
    Mar 25, 2012. 11:23 AM | 1 Like Like |Link to Comment
  • 100 Years Of S&P 500 Earnings, Dividends And Prices [View article]
    Regardless of how far you go back with the data...Richard's point is an excellent one. Dividends have historically been a main driver of S&P total returns. As a matter of fact, dividends accounted for over 100% of total returns for the S&P during the recent "lost decade" (meaning index returns were negative).
    Mar 25, 2012. 11:06 AM | 3 Likes Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    Also, fellow SA Contributor @RoccoPendola recently wrote a great Options for Beginners book. You should check it out. http://amzn.to/xJbDJA
    Mar 23, 2012. 09:48 AM | 1 Like Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    Hi ron - you are not alone...and its definitely best to do as much research as you can before jumping into a new strategy.

    The Options Industry Council is probably one of the best free resources on the web for options.

    http://bit.ly/GJ7DCH
    Mar 23, 2012. 09:43 AM | Likes Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    Hi Larry, thanks for the comment. We are working on an article right now detailing how to decide which expirations and strikes to choose. Stay tuned...
    Mar 22, 2012. 02:40 PM | 1 Like Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    Hi Jeffry - You would need at least 100 shares to write a covered call since one call contract represents 100 shares of stock. Obviously, the more shares you have, the less brokerage fees will dilute your return...but fees are definitely important to considering when analyzing the strategy...
    Mar 22, 2012. 01:30 PM | 2 Likes Like |Link to Comment
  • On The Way To $500,000: Making Lemonade From Lemons [View article]
    I like the $LULU calls. The stock broke through a key pivot point in late January ($64.49) and it has shown good strength since then (and its now ~15% above the pivot). There is definitely room to move higher by September.

    Fundamentally, the company is knocking the cover off the ball...sales and earnings growth are very strong and their profit margins are ridiculous (since over 90% of their merchandise is sold at retail price!).

    I prefer higher delta calls with more intrinsic value...but that is just a personal preference.

    Looks like you got a good fill on the $75s though.

    Cheers to making lemonade with [lulu]lemons... :)
    Mar 22, 2012. 01:17 PM | 1 Like Like |Link to Comment
  • 3 Ways To Reap The Dividends From Kinder Morgan And El Paso Merger [View article]
    Very nice summary of the Kinder Morgan Complex, TJ. Keep up the good work, bro...
    Mar 22, 2012. 12:26 PM | 5 Likes Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    You are correct, IncomeYield...covered calls are by no means a free lunch. One of the downsides of the strategy is losing your stock (albeit at a higher price). Its a balancing act between premium yield, upside profit, and margin of safety. At the end of the day, its a risk/reward decision that will vary by investor...
    Mar 22, 2012. 11:55 AM | 2 Likes Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    Thanks Tradevestor...we've been enjoying your articles as well. Do you utilize a covered call strategy?
    Mar 22, 2012. 11:41 AM | Likes Like |Link to Comment
  • Taking Cover: A Strategy For Dividend Stock Investors During A Market Pullback [View article]
    Hi pal, thanks for the comment. You are not alone...we'll put together a detailed example in our next article. Which dividend stocks do you own? We could use one of yours as an example...
    Mar 22, 2012. 11:39 AM | 6 Likes Like |Link to Comment
  • Annaly Capital - The Beginning Of The End [View article]
    Ha! Michael, I had to laugh myself...I literally couldn't believe what I was seeing...
    Mar 21, 2012. 11:50 AM | 1 Like Like |Link to Comment
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