5 August, 2022 seen 27This article has been sitting in the blog's draft section since May 2018, I decided I just have to write an answer to…
On September 10, 2019, I sold the following covered call - SFL SEP 20'19 12.5 @2.25. I entered this trade for a speculative reason and to learn a new technique - capturing a dividend. If things will work as planned I will boost September dividend income by additional $36 (before taxes)
On NASDAQ website, I was looking for shares with Ex-dividend date for September 11, 2019 to buy them just before going ex-div.
September 11 ex-div dates gave me some four interesting companies to investigate further (SFL, MPW,ECC and DEA). All companies had announced dividend in the range of 0.2-0.36$ per share.
I decided to go with SFL (lowest stock price) and MPW (kind of wouldn't mind keeping in the portfolio if things go south)
In the end, I stick with SFL (lowest stock price, highest dividend)
With the stock price at $14.765 per share and In-the-money strike price at $12.5, I needed to get at least $2.265 per share in premium to break even (not counting in commissions and dividend). I tried to get at least a $2.45 to $230, but at the end went for $2.25 per share.
Got for this trade a premium of $225, but I will be obligated to sell 100 shares of SFL if the strike price will be above $12.5 per share by Sep 20, 2019. Now as SFL is currently trading around $14.70, there is a more than a huge chance that I will have to sell at $12.5.
But as I have got a premium $225 or $2.25per share, I will be still almost break even. The rest comes from the dividend.
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 $14.70, $14.75 but at the end bought at $14.765
Now the rest is the only dividend, in case I will own SFL on the ex-dividend date I can expect to get a small $36 dividend (before taxes) in September
For a $1476.50 investment to buy this share, that would give us a 2.4% ROI in less than 10 days. Now, as we got a $225 premium, our real invested dollar value is just $1,250.
$36 from $1,250 is a 2.88% yield in less than 10 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 103.68% ROI in one year. Unbelievable.