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SPY’s September 2010 dividend—and a few others…

 
Friday, September 17th, 2010 | Vance Harwood
 

SPY went ex-dividend today 17-Sept-2010, with a dividend this quarter of $0.60 per share.  Its payout will be on 29-Oct-2010.

……….Div       Payout
JNK    0.3      9/10/2010
SPY     0.6        10/10/2010
XLB   0.67      9/29/2010
XLE    0.25      9/29/2010
XLF   0.03      9/29/2010
.

For SPDR’s full September update on their ETF distributions see here.

Posted in dividend, Dividend Capture, ex-dividend | No Comments »

Dealing with the dividend when you have a short position

 
Wednesday, December 7th, 2011 | Vance Harwood
 

What if I’m short a security when it goes ex-dividend?

You are on the hook for the dividend if you are short the stock/ETF when it goes ex-dividend.  It will be subtracted from your brokerage account on the distribution date.  You borrowed the stock, you are responsible for paying the owner of the security the dividend.

More questions on dividends?  See Top 10 questions about dividends.

Posted in Advanced Topics, all, dividend, ex-dividend | 2 Comments »

Dividend capture by buying SPY and shorting IVV?

 
Friday, March 25th, 2011 | Vance Harwood
 

If your devious dividend capture plan involves you hedging against SPY’s price movements by selling IVV short until after SPY goes ex-dividend you can forget about it. The IVV (Barclays Global) price doesn’t drop by SPY’s dividend amount on SPY’s ex-dividend date. It continues to track the S&P 500 until it goes ex-dividend a few days later. Your master plan will net out with you down by at least your commission costs.

For  IVV and SPY ex-dividend and distribution dates and lots of others  see here.

Thanks to Jeff in the comments below for pointing out to me that IVV management doesn’t have to do anything in order for this to play out this way.

IVV vs SPY (June 2010 ex-dividends), click to enlarge

Posted in all, dividend, Dividend Capture, ex-dividend | 3 Comments »

Dividend capture with covered calls—too hot, too cold, or just right!

 
Wednesday, December 7th, 2011 | Vance Harwood
 

If you have general questions about dividends see Top 10 questions about dividends.

One strategy for capturing dividends is to buy the stock/ETF and then sell calls against that security as a hedge—a covered call.  The value of the short calls moves in the opposite direction of the stock/ETF, providing a hedge.   There are three major variables with this strategy:

1. How many days before the ex-dividend date do you put the position in place?
2. What strike price do you select for the options?

3. How many days until the options expire?

Your risk profile, playing with these variables, can be generalized into the three situations below:

Too cold (too low a risk)    Calls too deep in the money
  • If you sell deep in the money (ITM) options you may feel you’ve found the golden goose.  The calls provide a great hedge, virtually eliminating risk from your position.   Unfortunately, your calls will almost certainly be assigned the evening before the ex-dividend day.  The owners of the calls are not about to let you get away with collecting dividends with such low risk, so they exercise the option you sold them.  They call away your stock and they collect the dividend.  Your position is closed out—no dividend for you.  The only profit you might have is from any premium present when you created the position (if your net investment was less than the strike price).   Some people use this strategy hoping that their options will not be assigned, and not all are, but in my experience the percentage not assigned is very low.

Too hot  (too much risk)    Calls without enough hedge value,  calls that don’t expire for a long time

  • If you sell options that have a strike price that is at or above the current market price of the stock/ETF you can collect a significant premium, and signficantly lower the risk of having your stock assigned.  However, since the value of the options is relatively small (perhaps .5% of the value of the stock) you don’t have much downside protection.   A few bad days on the market can wipe out a year’s worth of dividend capture profits.
  • Not having your stock assigned is good from a dividend collection standpoint, but it is bad if your options have weeks until they expire.  If your calls have a while to run you will see the premium on your unassigned options increase by about the amount of the dividend on the ex-dividend day.   Since you are short these calls your net profit on ex-dividend day will be about zero.   Until the premium on the option decays away, ultimately going to zero at expiration, your position is usually not profitable.   While you wait for the premium on the call to decay you are exposed to market risk—this can be very unpleasant.

    • Just right
    • What I have found to be a good combination is:
      • Find stocks/ETFs where the options will expire within 10 business days of the ex-dividend date
      • Create the covered call position about a week before the ex-dividend date
      • Choose a strike price that gives you a premium about equal to the dividend value.
    • This recipe will usually result in a covered call position that will be assigned on the evening before the ex-dividend date.  You typically don’t collect the dividend, but since the option is closed out you keep the option premium which is roughly equal to the dividend amount.
    • The calls will provide a decent hedge against risk.  Not enough to protect against a major market move, but they do provide significant protection
    • If the stock/ETF value goes down after you put the covered call in place then the chances of call assignment decrease—bettering your chances of collecting the dividend.  If you do collect the dividend  the breakeven point on your position is improved, and your maximum profit potential goes up by the dividend amount.
    • If the bid / ask spreads on the stocks / options are significant you will probably need to use a combo order to get a decent profit potential.
    • While ok in flat or rising market—this position will not hedge a serious bear move—be prepared to bail out if the market goes seriously south

    Related posts

    Posted in Advanced Topics, all, Covered Calls, dividend, Dividend Capture, ex-dividend, Options | 8 Comments »

    Capturing dividends with covered calls—are you ready?

     
    Saturday, September 24th, 2011 | Vance Harwood
     

    In a recent post I gave an overview of dividend capture strategies.

    In some situations an effective way to hedge risk with a dividend capture strategy is to use covered call options.  If you are not familiar with options this might sound exotic, but it’s truly the training wheels of option trading.  With covered calls you can introduce yourself to the conservative, hedging possibilities of options while increasing your odds of making modest amounts of money.   Before getting into the details,  please review the checklist below, to see if you are ready / able to do this:

    • Do you have enough capital?
      • This strategy requires you to buy hundreds of shares of stock to make it worth your trouble, do you have the money?
      • You can use margin to buy the stock, but that will increase your costs.
    • Will you be content with a small gain?
      • This strategy is generally not effective with stocks with large dividends (e.g. 4% or higher).  It works better with stocks that offer annualized dividends in the 2% to 3% range
      • On the good news side, you generally get the small gain with less than 10 business days of investment
    • Does the stock/ETF you want to capture the dividend on have a active option market?
      • If the options are thinly traded, or if appropriate strike prices are not available this strategy does not work
    • Are you set up for at least the first level (simplest level) of options trading in your brokerage account?
      • If your account is not an IRA then you will need to have a margin account.  Don’t worry, there are no interest charges or chance of a margin call with this strategy (assuming you don’t buy the stock on margin)
      • This first level of option authorization usually allows covered calls and simple purchases / sales of puts and calls
      • Typically you can do these sorts of trades in a Roth / Traditional IRA — however you do need to apply for that capability if you don’t have it already
    • Are you willing to learn about combo orders? These are orders that simultaneously fill your stock and options orders at a not-to-exceed price
      • These orders are prudent to use in fast moving markets, and when bid/ask prices are widely separated
      • Combo orders are not necessary if bid/ask spreads are small and if you are willing to do fast sequential market orders

    Extra Credit

    • Can you make your investment in an IRA account?
      • If so, this dividend strategy is more attractive, because you can defer taxes on any gains

    Pass the test?  In this post I’ll give some screening criteria for good positions and the basic setup of this dividend capture strategy.

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

    Dividend Capture Strategies

     
    Sunday, December 12th, 2010 | Vance Harwood
     

    In trying to capture dividends there is no free lunch. In fact, since Wall street is involved, the best you can hope for is an affordable lunch. I have looked at, and tried quite a few approaches—most of which don’t work, but I have found one approach that does work with some ETFs. Ironically you don’t actually collect the dividend most of the time, but you can collect an amount similar to the dividend-with a reasonable amount of risk.

    Anyone with money can capture a dividend—you buy the stock (or ETF) before the ex-dividend date and hold it until the ex-dividend date. The challenge is to close out your position with a profit that is worth the risk. Typically the stock will drop by about the dividend amount when it starts trading on the ex-dividend day, but if the stock has a generally up day your overall profit can be better than the dividend. You lose money if the stock drops by more than the dividend amount (ignoring commissions)—and if the market goes bad you can lose many months worth of dividends in a hurry.

    There are two ways to deal with this kind of risk, you can try to predict the future, or you can hedge. If you are any good at predicting the future then you don’t need to be messing around with dividends, you should just be buying and selling based on your predictions. With hedging you try to reduce, or better yet eliminate your risk by also investing in something that moves in the opposite direction of the stock so that the price movements cancel out. Some high quality hedges for a stock or ETF:

    1. Sell the stock short
    2. Sell a stock short that very closely tracks the stock you own (e.g., IVV for SPY)
    3. Buy an ETF that has an inverse relationship to your stock  (this can be done in IRAs, they don’t allow shorting)

     

    Hedges that can reduce your risk, but only provide medium protection include:

    1. Shorting the general market or industry sector that your stock is in
    2. Buying inverse ETFs for the general market or industry sector
    3. Use stock options with strike prices close to the current market price
    4. Use stock futures (sell futures)

     

    The folks on Wall Street aren’t about to let you get away with any sort of risk free profit, even if it is only a few tenths of a percent.   The high quality hedges above don’t work at all (see here) for dividend capture.   The medium level hedges don’t eliminate the downside risk and introduce the possibility that an upside move by your stock might be more than wiped out by an even stronger downside move by your hedge.

     

    I have used one approach that offers a reasonable payoff, with reasonable risk—using deep-in-the-money stock option calls to capture the dividend amount.   More about this in this post.

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

    2012 Ex-dividend and Pay date information for AGZ, CFT, CIU, EMB, GBF, GVI, MBB, MUB, NYF SUM, MUAA, MUAB, MUAC, MUAD, MUAE, MUAG

     
    Sunday, March 11th, 2012 | Vance Harwood
     

    The 2012 Ex-Dividend and Pay Date  information below is based on Ishares distribution schedule,

    Ex-Dividend Date:   1-Feb-12    1-Mar-12    2-Apr-12     1-May-12   1-Jun-12   2-Jul-12   1-Aug-12   4-Sep-12   1-Oct-12   1-Nov-12   3-Dec-12   26-Dec-12

    Pay/ Distribution Date:  7-Jan-12   7-Feb-12   9-Mar-12  7-Apr-12  7-May-12    07-Jun-12    9-Jul-12   7-Aug-12   10-Sep-12   5-Oct-12   7-Nov-12   7-Dec-12   02-Jan-13

    AGZ      iShares Barclays Agency Bond Fund (AGZ)
    CFT      iShares Barclays Credit Bond Fund (CFT)
    CIU      iShares Barclays Intermediate Credit Bond Fund (CIU)
    EMB     iShares JPMorgan USD Emerging Markets Bond Fund (EMB)
    GBF      iShares Barclays Government/Credit Bond Fund (GBF)
    GVI      iShares Barclays Intermediate Government/Credit Bond Fund (GVI)
    MUAA iShares 2012 S&P AMT-Free Municipal Series (MUAA)
    MUAB iShares 2013 S&P AMT-Free Municipal Series (MUAB)
    MUAC iShares 2014 S&P AMT-Free Municipal Series (MUAC)
    MUAD iShares 2015 S&P AMT-Free Municipal Series (MUAD)
    MUAE iShares 2016 S&P AMT-Free Municipal Series (MUAE)
    MUAG iShares 2017 S&P AMT-Free Municipal Series (MUAF)
    MBB     iShares Barclays MBS Bond Fund (MBB)
    MUB    iShares S&P National AMT-Free Municipal Bond Fund (MUB)
    NYF     iShares S&P New York AMT-Free Municipal Bond Fund (NYF)
    SUB      iShares S&P Short Term National AMT-Free Municipal Bond Fund (SUB)

    Looking for ex-dividend information for other ETFs?   Check this page.

    Posted in all, dividend, Dividend Capture, ex-dividend, Mainstream | Comments Off

    Schwab stealth dividends — can you guess the pattern?

     
    Tuesday, June 22nd, 2010 | Vance Harwood
     

    Update

    Schwab posted their 2010 ex-dividend / distribution dates for their no-fee ETFs here.

    Original post…

    Schwab’s new no-commission ETFs went ex-dividend last Monday, March 22nd.   The distribution date is 26-March–only four days later!   I had guessed Schwab would align with the quarterly iShares funds ex-dividends, but apparently they have decided to go it alone with apparently semi-random, unannounced ex-dividend dates.  The dividends to be paid were posted recently.  The distributions:

    SCHA   $0.07

    SCHB   $0.11

    SCHG  $0.05

    SCHV  $0.14

    SCHX   $0.10  (I had guessed $0.12)

    The two ex-dividend dates we have since the funds started, 23-Dec-09, a Thursday, and 22-Mar-10, a Monday, don’t suggest a pattern I can see.   Ex-dividend dates tend to follow a week / day of week pattern (e.g., Thursday on the 3rd week of the month), or a day of the month (e.g., 1st of the month unless it is not a business day).   The December date was the 17th business day, and the March date was the 16th, so not a usable pattern there either.  Guess we will have to wait another quarter to get another data point.   In the meantime I’m going to guess and predict the next Schwab fund ex-dividend date will be on 21-June-2010.

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

    Dividend History

     
    Wednesday, December 28th, 2011 | Vance Harwood
     

    I’ve recently created a tool for generating dividend history reports on any of the iShares and SPDR ETFs.

    You can access it here: Dividend History Report.

    Links to a few selected pre-generated reports are shown below:

    DIA dividend history

    DVY dividend history

    IWM dividend history

    JNK dividend history

    LQD dividend history

    SPY dividend history

    TIP dividend history

    XLP dividend history

    XLU dividend history

    If you need dividend history on a non iShare / SPDR fund or stock then I recommend the DividendInvestor site.

     

     

    Posted in dividend, Dividend Capture, ex-dividend, Mainstream, master | No Comments »

    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 »

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