Tyco International Stock Option Hedged Dividend Capture $TYC
You can read about several dividend harvesting approaches. While some are better than others, the trick is to minimize the amount of risk, and still have an edge. This is one of my favorite and easy to understand methods of making gains with options and dividends. I get asked often how long I normally hold the position before closing out. On average I enter into a position with the idea I may hold it for a month with the current numbers here.
Tyco International Ltd. provides security products and services, fire protection and detection products and services, valves and controls, and other industrial products worldwide. The company was founded in 1960 and is based in Schaffhausen, Switzerland.
Tyco International Ltd /ber/ (TYC)
Dividend Amount: $0.25
Ex-Dividend Date: 2012-04-02
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.
I generally hold any given position with a yield of 1.78% and dividend of $0.25 for about 9 days depending on the timing of the option expiration date and the day of the week of the ex-dividend. When learning a new trading strategy it is better to use a simulated trading account first. It is easy to make mistakes when starting out on a new strategy and mistakes cost a lot less with a simulated account. After a level of confidence is built, then it may be time to move into a real money account.Tyco International /ber/ upcoming stock dividend appears to be attractive and worth the time and effort to capture. A requirement I have is be able to sell a call option in either the front, or first back month that is in the money, and with enough premium that I will not object to an early exercise notice (which does happen from time to time, but profitable if everything is done according to plan).
In combination with my buying Tyco International /ber/ stock and after checking company updates, offer to sell the May $52.50 strike price or lower call for $0.96 over the intrinsic value. The option may get exercised early for a gain. In almost all cases I will sell the call option first to ensure the stock option leg is complete first. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about about $0.35, plus the dividend received. It is important to sell the call option hedge at or near the asking price for at least the minimum amount over intrinsic value. I will not want to try putting on the hedge unless the sale of the option (hedge) will provide at least the full $0.96 over intrinsic value. If my shares get called away the day before they trade ex-dividend as a result of the option buyer wanting the dividend I will make about $0.96 Not all that great, but not bad for about a week of owning the stock. The most I can make is $1.21 if I hold the covered call through option expiration day and the stock gets called away.
My last step (completed before making a trade on the same day) is to check company announcements, and news sources for possible events that may cause the stock price to move. This is especially important during earnings season. Learn more about stock options by clicking here.
I use a proprietary blend of technical analysis, financial crowd behavior and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. You may want to use this article as a starting point of your own research with your financial planner.