![]() Let’s examine this trade in detail to see if lunch is really free.Ī quarterly dividend of $1.50 annualizes out to $6 or 12% for a $50 security. We lose $150.00 in share value and gain $150.00 on the option side for a wash.On the ex-date, share value decreases to $48.50 and option value declines to $8.70 (subtracting $1.50 from both).Dividend to be distributed is $1.50 per share.Prior to the ex-date, buy 100 x BCI $50.00.Here is the example sent to me to demonstrate how this proposed methodology plays out: Finally that free lunch we have been searching for, right? That, ladies and gentlemen, was a rhetorical question. ![]() If we then buy back the option at a lower price and sell our shares at a loss, the two positions will cancel each other and now we simply wait to collect the dividend. If the option is trading with a delta of “1” then it, too, should decline by a similar amount. The basis of this game plan is to buy the stock prior to the ex-dividend date (date we must own the shares to be eligible to collect the dividend) and then sell a deep in-the-money call option that is trading with a delta of “1” On the ex-date, we now qualify for the dividend and two price changes are expected: both the value of the stock and that of the option drop by the amount of the dividend. These changes are based on the fact that share price does decrease by the amount of the dividend, no argument there. In this article I will evaluate an interesting approach to a strategy recently sent to me by one of our members who read it online. I recently wrote an extensive white paper on this topic located in the “resources/downloads” section of your premium site. It does not store any personal data.Capturing dividends using covered call writing has been a topic on great interest lately. The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. ![]() The cookie is used to store the user consent for the cookies in the category "Performance". This cookie is set by GDPR Cookie Consent plugin. ![]() The cookie is used to store the user consent for the cookies in the category "Other. The cookies is used to store the user consent for the cookies in the category "Necessary". The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". The cookie is used to store the user consent for the cookies in the category "Analytics". These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly. Now, it is not a good time to sell put spreads on FAANG stocks because they are all overvalued or fairly valued except Amazon and Facebook (check the dividend and growth stock database for the fair values: ). It is safe to sell put spreads on undervalued FAANG stocks. If they do not expire worthless, I would roll them into the future because eventually they will expire worthless in case of FAANG stocks. I would rather sell put spreads with 80-100% ROC per month on FAANG stocks as long as the underlying stock is fundamentally undervalued instead of selling covered calls. My buying power is available only once at any given time and I will certainly not use it for selling covered calls due to the low return of 1-2% per month. If you want to hold them for the long term, don’t sell covered calls, it will be painful when your stocks are called away and the stocks keep moving higher. FAANG stocks are growth stocks and they move quite a bit.
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