Comments on: Dividend capture strategies—three approaches to skip http://sixfigureinvesting.com/2010/03/dividend-capture-strategies%e2%80%94three-approaches-to-skip/ If you are sick and tired of buy and hold Tue, 07 Sep 2010 15:21:40 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: Anonymous http://sixfigureinvesting.com/2010/03/dividend-capture-strategies%e2%80%94three-approaches-to-skip/comment-page-1/#comment-69 Anonymous Mon, 08 Mar 2010 05:39:00 +0000 http://sixfigureinvesting.com/?p=921#comment-69 I believe that an upcoming dividend tends to have a positive effect on a stock. Selling options against that stock is a good way to hedge against the major risk of the #1 or #2 strategy--a major negative move in the market that drops the stock. Unfortunately options aren't great for this sort of short term insurance. First of all, the option bid/ask spread, which for many stocks is $0.10 or more will discourage a quick sell / buy sequence. Deep ITM calls (approach #3) provides good insurance, but they negatively track the stock quite well an uptick in the stock is cancelled out, ATM calls will give you approximately half the gain, but they don't provide much insurance value, and OTM calls don't provide much insurance at all. Selling ITM calls a few days before ex-dividend, with a premium around the dividend value, that expire within 10 days after the ex-dividend date is my preferred approach. Unless the market moves strongly against you the calls get assigned the night before ex-dividend. This avoids the bid/ask spread and limits your exposure to stock moves. I believe that an upcoming dividend tends to have a positive effect on a stock. Selling options against that stock is a good way to hedge against the major risk of the #1 or #2 strategy–a major negative move in the market that drops the stock. Unfortunately options aren’t great for this sort of short term insurance. First of all, the option bid/ask spread, which for many stocks is $0.10 or more will discourage a quick sell / buy sequence. Deep ITM calls (approach #3) provides good insurance, but they negatively track the stock quite well an uptick in the stock is cancelled out, ATM calls will give you approximately half the gain, but they don’t provide much insurance value, and OTM calls don’t provide much insurance at all.

Selling ITM calls a few days before ex-dividend, with a premium around the dividend value, that expire within 10 days after the ex-dividend date is my preferred approach. Unless the market moves strongly against you the calls get assigned the night before ex-dividend. This avoids the bid/ask spread and limits your exposure to stock moves.

]]> By: vance3h http://sixfigureinvesting.com/2010/03/dividend-capture-strategies%e2%80%94three-approaches-to-skip/comment-page-1/#comment-32 vance3h Mon, 08 Mar 2010 03:39:48 +0000 http://sixfigureinvesting.com/?p=921#comment-32 I believe that an upcoming dividend tends to have a positive effect on a stock. Selling options against that stock is a good way to hedge against the major risk of the #1 or #2 strategy--a major negative move in the market that drops the stock. Unfortunately options aren't great for this sort of short term insurance. First of all, the option bid/ask spread, which for many stocks is $0.10 or more will discourage a quick sell / buy sequence. Deep ITM calls (approach #3) provides good insurance, but they negatively track the stock quite well an uptick in the stock is cancelled out, ATM calls will give you approximately half the gain, but they don't provide much insurance value, and OTM calls don't provide much insurance at all. <br><br>Selling ITM calls a few days before ex-dividend, with a premium around the dividend value, that expire within 10 days after the ex-dividend date is my preferred approach. Unless the market moves strongly against you the calls get assigned the night before ex-dividend. This avoids the bid/ask spread and limits your exposure to stock moves. I believe that an upcoming dividend tends to have a positive effect on a stock. Selling options against that stock is a good way to hedge against the major risk of the #1 or #2 strategy–a major negative move in the market that drops the stock. Unfortunately options aren't great for this sort of short term insurance. First of all, the option bid/ask spread, which for many stocks is $0.10 or more will discourage a quick sell / buy sequence. Deep ITM calls (approach #3) provides good insurance, but they negatively track the stock quite well an uptick in the stock is cancelled out, ATM calls will give you approximately half the gain, but they don't provide much insurance value, and OTM calls don't provide much insurance at all.

Selling ITM calls a few days before ex-dividend, with a premium around the dividend value, that expire within 10 days after the ex-dividend date is my preferred approach. Unless the market moves strongly against you the calls get assigned the night before ex-dividend. This avoids the bid/ask spread and limits your exposure to stock moves.

]]> By: dividendium http://sixfigureinvesting.com/2010/03/dividend-capture-strategies%e2%80%94three-approaches-to-skip/comment-page-1/#comment-30 dividendium Sun, 07 Mar 2010 06:52:45 +0000 http://sixfigureinvesting.com/?p=921#comment-30 What about a combination of 2 and 3?<br><br>Selling options to get some cushion and increase the yield, but selling out before the ex-dividend date if/when the stock goes up the amount of the dividend. You don't actually get the real dividend, but you get the value of the dividend, which is really all you care about.<br><br>Of course, there's still risk involved, so you'd need to have a mental stop loss in place for when you would get out. What about a combination of 2 and 3?

Selling options to get some cushion and increase the yield, but selling out before the ex-dividend date if/when the stock goes up the amount of the dividend. You don't actually get the real dividend, but you get the value of the dividend, which is really all you care about.

Of course, there's still risk involved, so you'd need to have a mental stop loss in place for when you would get out.

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