DIA goes ex-dividend next Friday the 17th. The dividend history on this ETF (see below) suggests that the dividend will be around $0.30 per share. I put a dividend capture position in place buying DIA at 128.68 and selling-to-open the 18-Feb S127 calls for 2.09 for a net debit of 126.59.
The calls only provide a 1.5% downside cushion on the position, so I further hedged the position by buying Barclays’ XVZ in the ratio of $1 of XVZ for every $3 of DIA. This is the hedge ratio that I backtested in this post that historically would have done a good job of protecting a general equity position like SPY or DIA.
If the S127 calls stay significantly in the money then they will be assigned next Thursday night and I will keep the option premium, but won’t get the dividend. If DIA drops below 127 then the options probably won’t be assigned and my breakeven point drops by the dividend amount received.
To generate dividend history reports like this for all SPDR and iShares ETFs see this post.
Thursday, February 9th, 2012 | Vance Harwood