I bought SPY at 111.64, and sold-to-open SPY 108 June-30 expiration calls at 4.08 for a net investment (debit) of 107.58. I used the quarterly SPY options because I could go considerably deeper in the money with the calls and still get a premium that is close to the likely SPY dividend for this quarter (around $0.50). Schwab does not appear to offer access to this series of options, but Fidelity does.
If SPY stays above 111 through this Thursday I expect these options will be assigned–because the premium left on the calls will be less than the dividend the stock will payout. Friday is the ex-dividend date for SPY. If the calls are assigned I’ll collect $0.42 per share. If the options are not assigned, I will collect the SPY dividend–lowering my breakeven point to around 107.08.
For more info on this dividend capture strategy see this post
- Prediction: Dec 31, 2015 S&P 500 close at 2346 up 13.9%
- Assignment Risk, Short Calls, And Ex-Dividend Dates
- SPXH—Hedging the S&P 500 For Free?
- A Tale of Two Bulls
- Prediction: Dec 31,2013 S&P 500 close at 1468.38 up 2.96%
Wednesday, June 16th, 2010 | Vance Harwood