NEW YORK ( TheStreet) -- Many high-quality companies offer quarterly dividends to investors. Dividends may be a great source of income because with each payment shareholders can lower their investment cost, as long as they are shareholders on the required day of record.In my portfolio, although much of the gains will come from dividends, option decay will provide a big part of my gains. Option decay, or Theta, is the loss in time premium between two dates. This is especially true in lower-yielding stocks, since higher-yield options have lower-time premiums, all else being equal.
|When picking dividend stocks using an options hedge, companies such as Kraft become low-hanging fruit.|
St. Jude MedicalSt. Jude Medical ( STJ) is dedicated to making life better for cardiac, neurological and chronic pain patients worldwide.
Dividend amount: 23 cents
Ex-dividend date: June 27
Strategy: Buy St. Jude Medical stock and offer to sell the July $35 strike or lower call for 37 cents over the intrinsic value. I will try to close out the trade with a gain of near 21 cents, plus dividend. If my shares are called away before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 37 cents. The most I can make is 60 cents if I hold the covered call through option expiration day and the stock gets called away.