Today i want to write about a trade in Intel which allows me not only to collect the dividend but also to collect an option premium.
First you have to know the date when the stock has its ex-dividend day. You must have the stock in your portfolio on the day before this date. In the case of INTC this was the 5th May (ex-dividend day: 6th May).
So i bought 300 INTC on 27th April for 58.96 each and sold at the same time 3 call options in the money (strike 56) for 3.73 each. Expiration time 15th May.
What do i know on 27th April?
- I know that i´ll receive 99 $ dividend (300*0.33).
- I know that i receive 1.119 $ option premium (300*3.73).
- I know that as long as the stock is above 56 $ on expiration day, the 300 stocks will be called away and i will lose 888 $ with the stocks.
Overall income: 99 + 1.119 – 888 = 330 $
Of course you have to consider a few things:
- First – the stock can be called away early (before ex-dividend day). In this case you will receive „only“ 231 $ (1.119 – 888).
- Second – the stock can fall below the strike price on expiration day. In this case the stock stays in your portfolio (and you can sell the next bunch of call options). You should implement this strategy only with stocks you want to keep in your portfolio anyway.
- And a stock that looks like this in the last 15 years and that has never suspended the dividend i personally want to have in my portfolio:
So this was a short – not really in-deph-article about this strategy because i consider many other things: dividend yield, open interest at the strike, annualized return, next quarterly report…
Update 16th May: Intel closed at 58.28$ yesterday. So the 300 stocks have been called away, i got the premium and i´ll receive the dividend on 1st June (that´s the pay date). Not bad for the only 19 days of this investment.