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7 Dividend Captures Using an Option Hedge

Oceaneering International (OII)
Yield: 1.46%
Dividend Amount: $0.18
Ex-Dividend Date: May 30, 2012
Beta: 1.55

Strategy: Buy Oceaneering International stock and offer to sell the June $50.00 strike or lower call for $2.82 over the intrinsic value.

I will look to close out the covered option with a gain of about $1.03, plus the dividend received. I don't want the option hedge unless the sale will provide at least the minimum $2.82 over intrinsic value.

If my shares are called away the day before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about $2.82. The most I can make is $3.00, if I hold the covered call through option expiration day and the stock gets called away.

PepsiCo (PEP)
Yield: 3.22%
Dividend Amount: $0.54
Ex-Dividend Date: May 30, 2012
Beta: 0.49

Strategy: Buy PepsiCo stock and offer to sell the June $65.00 strike or lower call for 36 cents over the intrinsic value. I will attempt to close out the trade with a gain of near 11 cents, plus the dividend earned.

Kellogg Company (K)
Yield: 3.38%
Dividend Amount: $0.43
Ex-Dividend Date: May 30, 2012
Beta: 0.45

Strategy: Buy Kellogg Company stock and offer to sell the June $50.00 strike or lower call for 44 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 13 cents, plus the dividend earned.


In June, Rocco Pendola and I will have a live Webinar and I will demonstrate how to initiate a dividend capture trade. Details are on my blog and Rocco's newsletter page.

At the time of publication, Weinstein held no positions in equities mentioned in this piece.
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