Overview of dividend capture strategies

Wednesday, December 7th, 2011 | Vance Harwood
 

I have written several posts on dividend capture strategies.

My favored, although far from perfect strategy:

Dividend capture with covered calls

Some approaches I don’t recommend:

SPY dividend capture ideas that don’t work

Dividend capture—three approaches to skip

Additional background and tools, and an example:

Dividend capture overview

Covered calls–are you ready?

Combo orders–maximizing profits on covered calls

DIA dividend capture: creating the position

DIA dividend capture: position close out

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



DIA Dividend Capture–close out

Sunday, February 21st, 2010 | Vance Harwood
 

My DIA dividend capture position was assigned last night as expected, for a net profit of $0.27 per share.  Since my DIA position was called before the dividend was distributed I won’t actually get the dividend (which I am estimating to be $0.25), but my net profit is slightly more with considerably less risk than just buying DIA and holding to ex-dividend.   The image below includes today’s open interest on the DIA options as the far right column.  The Feb 99 calls went from an open interest of around 2400 to 38 overnight, so about 98.5% of the open calls were assigned.  The options up through the 102 strike were mostly cleared out.

DIA call option chain 19-Feb-2010, Open Interest on right, click to enlarge

DIA call option chain 19-Feb-2010, Open Interest on right, click to enlarge



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.

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