7 Dividend Captures Using an Option Hedge

My last step (completed before making a trade on the same day) is to check company announcements and news sources for possible events that may cause the stock price to move. This is especially critical during earnings season.

ICICI Bank Limited (ADR) (IBN) provides various banking and financial services in India and internationally.

ICICI Bank
Yield: 2.02%
Dividend Amount: $0.62
Ex-Dividend Date: May 30, 2012
Beta: 2.12

Strategy: Buy ICICI Bank Limited (ADR) stock and offer to sell the June $24.00 strike or lower call for 36 cents over the intrinsic value.

The option may get exercised early for a gain. In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near 11 cents, plus the dividend earned.

If my shares are called away the day before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 36 cents. The most I can make is 98 cents, if I hold the covered call through option expiration day and the stock gets called away.

Qualcomm (QCOM)
Yield: 1.6%
Dividend Amount: $0.25
Ex-Dividend Date: May 30, 2012
Beta: 0.99

Strategy: Buy Qualcomm stock and offer to sell the June $60.00 strike or lower call for $1.02 over the intrinsic value.

In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about 77 cents, plus the dividend received.

With the yield of Qualcomm only 1.6%, as much or more of the gain should be coming from the option premium, otherwise it does not make sense to try to execute this trade.

Schlumberger (SLB)
Yield: 1.58%
Dividend Amount: $0.28
Ex-Dividend Date: May 30, 2012
Beta: 1.36

Strategy: Buy Schlumberger stock and offer to sell the June $60.00 strike or lower call for 92 cents over the intrinsic value.

The option may get exercised early for a gain. In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about 34 cents, plus the dividend received.

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