On August 23rd, 2019, I sold the following covered call - WPG SEP 20'19 2.5 @0.9. I entered this trade for a speculative reason and to learn a new technique - capturing a dividend
On dividend.com I noticed that WPG has kept a dividend at $0.25 per share, and is going ex-dividend on August 30
Upcoming dividend date WPG
As we have been holding WPG in our children investment portfolio, I keep an eye on developments with this stock, In short the stock has lost in value about 50% since we first bought it at the end of 2018, but has kept a stable dividend, despite the dividend yield is already close to 30%
I decided to perform a little experiment and see, could I capture dividend using call options.
With the stock price at $3.4 per share and In-the-money strike price at $2.5, I needed to get at least $0.9 per share in premium to break even (not counting in commissions and dividend). I tried to get at least a dollar or $0.95 but at the end got $0.9 per share.
Got for this trade a premium of $90, but I will be obligated to sell 100 shares of WPG if the strike price will be above $2.5 per share by Sep 20, 2019. Now as WPG is currently trading around $3.30 - $3.40, there is a more than a huge chance that I will have to sell at $2.5.
But as I have got premium $90 or $0.9 per share, I will be still break even.
After I sold this naked call, I immediately bought 100 shares of WPG, again I tried to lower the share price by setting limit price $3.30, $3.35 but at the end bought at $3.4
Now the rest is the only dividend, in case I will own WPG on the ex-dividend date I can expect to get a small $25 dividend (before taxes) in September
For a little $340 investment to buy this share, that would give us a 7.35% ROI in less than 30 days. Now, as we got a $90 premium, our real invested dollar value is just $250.
$25 from $250 is a 10% yield in less than 30 days
I'm not sure is it even sustainable to make such returns for 12 months in a row but if it is, then it would give a 120% ROI in one year. Unbelievable.