BB&T Dividend Capture With Call Option Hedge

| About: BB&T Corporation (BBT)

If you take a look you will find a lot of companies worth owning offer quarterly (or more often) dividends to shareholders. This can be a wonderful source of investor revenue and with each dividend payment received, investors are able to lower their risk in an investment. Some dividend seeking investors will buy a stock in part because of the dividend and the current yield. The one basic requirement to receive a dividend payout from a company is to be a shareholder on the day of record for the dividend.

You can read about several dividend harvesting approaches. While some are better than others, the trick is to minimize the amount of risk, and still have an edge. This is one of my favorite and easy to understand methods of making gains with options and dividends. I get asked often how long I normally hold the position before closing out. On average I enter into a position with the idea I may hold it for a month with the current numbers here.

BB&T Corporation (NYSE:BBT) operates as a financial holding company for Branch Banking and Trust Company that provides various banking and trust services for retail and commercial clients. The company was founded in 1872 and is headquartered in Winston-Salem, North Carolina.

  • Yield: 2.17%
  • Dividend Amount: $0.16
  • Ex-Dividend Date: April 04, 2012
  • Beta: 1.04

I generally hold any given position with a yield of 2.17% and dividend of $0.16 for about 11 days depending on the timing of the option expiration date and the day of the week of the ex-dividend. When learning a new trading strategy it is better to use a simulated trading account first. It is easy to make mistakes when starting out on a new strategy and mistakes cost a lot less with a simulated account. After a level of confidence is built, then it may be time to move into a real money account. BB&T's upcoming stock dividend appears to be attractive and worth the time and effort to capture. A requirement I have is to 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).


In combination with my buying BB&T stock and after checking company updates, offer to sell the April $28.00 or lower strike call for $0.25 over the intrinsic value. The option may get exercised early for a gain. In almost all cases I will sell the call option first to ensure the stock option leg is complete first. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near $0.10, plus the dividend earned. 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 will not want to try putting on the hedge unless the sale of the option (hedge) will provide at least the full $0.25 over intrinsic value. If my shares get called away the day before they trade ex-dividend as a result of the option buyer wanting the dividend I will make about $0.25. The most I can make is $0.41 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 events that may cause the stock price to move. This is especially important during earnings season. Learn more about stock options by clicking here.

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. 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, but may initiate a long position in BBT over the next 72 hours.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , , Regional - Mid-Atlantic Banks, Options
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here