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Equity option expiration dates

 
Sunday, October 23rd, 2011 | Vance Harwood
 

Next CBOE Weeklys listings and expiration

The expiration dates for 2011 / 2012 Equity options are:

Monthly expiration dates
Last trade Friday PM
September 17th, 2011
October 22nd, 2011
November 19th, 2011
December 17th, 2011
January 21st, 2012
Feburary 18th, 2012
March 17th, 2012
April 21st, 2012
May 19th, 2012
June, 16th, 2012
July 21st, 2012
August 18th, 2012
September 22nd, 2012
October 20th, 2012
November 17th, 2012
December 22nd, 2012
Source:   OCC and CBOE option expiration calendars

Posted in Advanced Topics, Covered Calls, dividend, Dividend Capture, ex-dividend, Mainstream, Options | No Comments »

SPY dividend capture strategies that don’t work…

 
Tuesday, March 8th, 2011 | Vance Harwood
 

Some SPY dividend capture strategies I don’t recommend:

1. Sell SPY short right before closing the day before ex-dividend

  • Rationale:  Securities tend to drop by about the dividend amount when trading begins (pre-open trading)
  • Problem:   The buyer that bought the stock from you deserves the dividend and the loaner that loaned you the stock you sold (probably unknowingly), deserves the dividend too.  Two dividends, one share of stock–you make up the difference.  You will have the dividend amount subtracted from your account.

2.  Create a covered call position with SPY right before ex-dividend by buying SPY and selling  deep in the money calls

  • Rationale:  You own the stock, so you will collect the dividend.  The value of the short calls moves in direct opposition to the value of SPY, so you have a near perfect hedge, with very little risk from anything other than a total market meltdown.   The options expire the next day after the ex-dividend date so the position automatically closes itself out the weekend after the ex-dividend.
  • Problem:  If the premium value of the SPY calls is significantly lower than the dividend amount (which is a certainty with deep in the money calls near expiration) your calls will very likely  be assigned.  Your stock will be called away, and you will not collect the dividend.  Unless you received some premium when you created your covered call position (if your breakeven price is  less than the strike price)   you have just paid commissions for nothing.

3.  Buy SPY and sell the same number of IVV (the iShares version of SPY) short

  • Rationale:  Since IVV goes ex-dividend a few days after SPY there is time to buy back IVV before its dividend is due.  SPY and IVV both track the S&P index, pretty much exactly, so the long and short position are perfectly hedged.
  • Problem: The value of IVV is tied to the S&P 500 index , not SPY.  Since the S&P 500 is not influenced by SPY going ex-dividend IVV doesn’t mirror the SPY move.  After SPY goes ex-dividend there is an increased offset between SPY and IVV that doesn’t go away until IVV goes ex-dividend the next week.   At that point the two ETFs go back to their usual offset with IVV typically being  ~$0.40 higher.   Your losses in your short IVV position cancel out your dividend gains from holding SPY.  Only your broker is happy.

Posted in all, Covered Calls, dividend, Dividend Capture, ex-dividend, Mainstream, Options | No Comments »

Dividend capture strategies—three approaches to skip

 
Sunday, February 12th, 2012 | Vance Harwood
 

The dividend capture approaches that I describe below do work some of the time.  My experience is that they expose the investor to excessive risk relative to the payoff–or they don’t pay off often enough.

  1. Buy and hold dividend paying stocks
    • If you love the stock, this is a fine strategy, but then it really isn’t a dividend capture strategy.  The dividend is just a bonus.   If you don’t particularly like the stock, or don’t know much about the company / index then the price risk you assume typically swamps out the dividend.
    • An advantage of this approach is that if you hold the stock long enough then you qualify for qualified dividends which currently have a lower tax rate.   I prefer to do dividend capture in IRAs or other tax deferred  accounts so the small gains aren’t ravaged by taxes.
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  2. Buy the day before ex-dividend and sell at closing
    • Many dividend paying stocks do  have a run-up the day before ex-dividend, but market risk makes this an iffy proposition.
    • If the stock tanks due to market action it is tempting to not sell and at least collect the dividend, but this is often a bad idea.  The stock will typically drop the amount of the dividend at opening  regardless of the market conditions and if the day before was bad, the momentum is clearly negative.  Investors that don’t follow the ex-dividend dates might conclude the stock is continuing to weaken and bail out.
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  3. Buy the stock a few days before ex-dividend and sell deep in the money calls options on the stock—hoping they won’t be exercised.
    • This would be a fine strategy if the options market makers were stupid.  Clearly they are not.  Usually a few days before ex-dividend the premium available on the deep ITM calls  drops to near zero, and they will almost certainly be exercised the night before the stock goes ex-dividend—leaving you with nothing.
    • It is tempting to sell not-so-deep ITM options to get some premium up front.   If the option expiration date is not close to the ex-dividend date this is generally a bad idea.  If the premium is attractive then you typically are not very deep in the money—exposing you to market risk.  Unless the underlying moves strongly up your options will probably not be assigned and then you will see a nasty jump in option premium starting at opening on the ex-dividend date—making it unprofitable to close out the position until near the option expiration date.

Posted in all, Covered Calls, dividend, Dividend Capture, ex-dividend, Mainstream, Options | 2 Comments »

Covered call on SDS

 
Thursday, February 25th, 2010 | Vance Harwood
 

Did covered calls on SDS (double short S&P 500).  Bought SDS at 35.86, sold March 34 calls at 2.37 for a net investment of 33.52.    Extrinsic value is .48, so the max profit potential is  .48/33.52 = 1.4%

Posted in Advanced Topics, all, Covered Calls, Options | No Comments »

Investing ideas for March: Oil, SPY, Dividend capture, VIX

 
Wednesday, February 24th, 2010 | Vance Harwood
 

Looking forward to some possibilities in March:

  1. Oil (EFT USO) — I’m bearish right now at 38.  I will probably jump back in with covered calls if it drops to the 36 range.
    .
  2. SPY —  I’m bearish now.   Will probably jump back in with covered calls if  SPY drops to around 106.
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  3. Monday March 1  –  Ex-dividend date for most ETFs with monthly distributions (e.g., AGG, IEF, JNK, TIP).   I’m still looking for a good dividend capture play here.    Most of these funds have thinly traded options and low volatilities, so option based dividend capture schemes I’ve priced are not attractive. Best strategy I’ve seen is buying the ETF the morning before ex-dividend and selling at close that day–but this is obviously exposed to market action.   JNK could probably be hedged by going short on SPY (or long SH, SDS) , but probably not a good enough correlation to make me comfortable.  Purchases have to be made by Friday February 26th to qualify for the dividend.
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  4. Wednesday March 17th — VIX option expiration.    Currently the VIX index is running in the low twenties.    I don’t have any feel for direction right now–staying on the sidelines, awaiting inspiration.
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  5. Friday March 19th — Ex-dividend date for DIA.   My February dividend capture approach worked well–will have to see how the market is behaving 4 or 5 days before.   My dividend history chart suggests the payout will be around $0.24.
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  6. Friday March 19th — SPY ex-dividend (estimated payout of $0.52) date–also ex-dividend date for many  SPDRs funds with quarterly distributions.  Schwab’s new no commission ETFs will probably go ex-dividend on the 19th also.   I will probably use the same dividend capture /  early option exercise approach I used on DIA (sell ITM calls 4 or 5 days before the ex-dividend with extrinsic values about equal to the the dividend payout).  It works very well in a flat or uptrending market.  I typically use both the monthy SPY options and the quarterly SPY options, which expire 31-March (symbol RDQ).    The dividend payout gives an additional ~$0.5 margin on break-even if the market goes against you.
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  7. Saturday March 20th — Equity options expire
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  8. Thursday March 25th  – IVV ex-dividend (estimated payout of  $0.50) date–also ex-dividend date for many iShare funds with quarterly distributions.    IVV’s options historically have not been attractive for my ITM option dividend capture approach, so I usually sit out this one.  Still looking for a good candidate however.
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  9. Thursday April 1st  – SPY March quarterly options expire

Posted in Advanced Topics, all, Covered Calls, dividend, Dividend Capture, ex-dividend, Mainstream, Options, VIX | No Comments »

Out of Oil and SPY

 
Monday, February 22nd, 2010 | Vance Harwood
 

My USO position and my remaining SPY covered call positions were called this weekend, so I’m back to about 90% cash.  Despite the scary stuff in the last couple of weeks, they ended up yielding their maximum profit potential.

Oil looks expensive right now, so I wouldn’t be surprised to see a pull back there.   The S&P 500 could certainly go higher with this rally, but looking at the 250 day chart the resistance level at 111 really stands out.  This one could be tough to break through. Click chart to enlarge.

SPY22Feb10

Posted in Advanced Topics, Covered Calls, dividend, ex-dividend, Mainstream | 1 Comment »

February SPY close-out

 
Friday, February 19th, 2010 | Vance Harwood
 

I closed out my SPY Feb 111 buy-write position a little early today.  It would have probably closed in the money, but I didn’t like the way the market was behaving for a position that was only a few tenths in the money.   Sold SPY at 111.23 and bought back the calls at .36 for a net credit of 110.87.  Overall profit was 2.44 per share–a nice return.

Posted in Advanced Topics, Covered Calls, Mainstream, Options | No Comments »

Feb 2010 DIA dividend capture

 
Saturday, November 19th, 2011 | Vance Harwood
 

Bought DIA at 101.17, sold-to-open Feb 99 calls at 2.44 — both with market orders, for a net debit of 98.73.    Pretty frustrating morning– tried to do buy-writes first thing today with a net debit amount, but I  never got a fill, even though I was splitting the ask/bid price or slightly more generous on the options (97 calls at that point).  I don’t know if this is due to the upcoming DIA dividend, the general behavior of the DIA option market makers, Fidelity’s software/order flow, or what.

For this strategy, getting better than the listed ask/bid price is pretty important– $0.05 or $0.10 is a pretty big percentage of the available profit for the deep ITM calls.  I looked at doing a call vertical spread,splitting the bid/ask spread,  with the long side way OTM (e.g., 108)–to be followed by buying DIA at market.   The spread might execute better because it would be be an options only trade, and would only cost a cent or two, but by that time the market was rallying strongly–I didn’t want to be in an effective naked short call situation in a dynamic market while I created the long side of the DIA covered call position.

Posted in Advanced Topics, all, Covered Calls, dividend, Dividend Capture, ex-dividend, Options | No Comments »

DIA dividend capture

 
Thursday, April 22nd, 2010 | Vance Harwood
 

The SPDR Dow Diamond ETF is an interesting candidate for a dividend capture strategy–if you can do it in a tax sheltered account such as a traditional or ROTH IRA.   On an annual basis is it yielding around 2% and it distributes dividends monthly.  Its dividend payouts are not consistent month to month, they vary from an average of  $0.11 in January over the last 5 years, to and average of $0.33 in October.  The chart below gives details.   February’s average payout is around $0.25, which is pretty close to a .25% return since the DIA is around $100 per share right now.

DIA is unusual for a index ETF offering monthly dividends, in that its ex-dividend dates are the day before the option expiration date for that month.  For example DIA goes ex-dividend on 19-February and the last day of trading on the options is also the 19th with expiration on Saturday the 20th.

This arrangement sets up a straightforward dividend capture scheme using covered calls.   You buy DIA and sell DIA ITM calls, with an extrinsic  value (time value) of approximately the dividend value (historically about 0.25 for February).  At closing today, with DIA at $101.5, this would suggest the 98 Feb call, which at $3.75 would give the target extrinsic value.  The break-even point on this position will probably be 101.5-3.75 =97.75.  I say probably, because there is uncertainty on whether you collect the 0.25 per share dividend or not.

Read More

Posted in Advanced Topics, all, Covered Calls, dividend, Dividend Capture, ex-dividend, Mainstream, Options | No Comments »

Fear and Greed in a Tussle

 
Sunday, January 31st, 2010 | Vance Harwood
 

Neither the bulls or the bears have gotten the upper hand this week.   The specter of another debacle, similar to last year’s, hangs out in the back of our minds, but the fairly constant stream of good earnings reports provides a counterbalance.    I think this correction has pretty much run its course.   I’m putting some more chips down…

Did a covered call of SPY–bought SPY at 108.42, sold-to-open Feb 109 calls at 1.86  (-SWG100220C109 in Fidelity speak), for a net investment of 106.56.

Posted in Advanced Topics, Covered Calls, Mainstream, Options | No Comments »

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