NEW YORK ( TheStreet) -- Using a call option to hedge against downward price risk is my favorite dividend-capture strategy. With this strategy, I have found I must be highly selective in my stock targets. In this review, I filter for the most worthy stocks also offering dividends.
Let's look at my first stock,
(GCI - Get Report) as an example. Gannett operates as a media and marketing solutions company in the U.S. and internationally.
Dividend Amount: $0.20
Ex-Dividend Date: June 06, 2012
Strategy: Buy Gannett stock and offer to sell the June $13.00 strike or lower call for 37 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 19 cents, plus the quarterly dividend paid by the company.I review many call strikes and estimate the expected probabilities based in part on beta, bid, offer, volume traded the current day, open interest and time value/implied volatility. Call options offer some protection from possible adverse moves in the stock price and provide offset revenue when the options do not fully cover down moves in the stock. Income is welcomed, but not needed from option premiums, so a break even from option premiums received/stock losses ratio is a win.
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