We lose $150.00 in share value and gain $150.00 on the option side for a wash.
On the ex-date, share value decreases to $48.50 and option value declines to $8.70 (subtracting $1.50 from both).Dividend to be distributed is $1.50 per share.Prior to the ex-date, buy 100 x BCI $50.00.Here is the example sent to me to demonstrate how this proposed methodology plays out:
#Dividend capture strategy free
Finally that free lunch we have been searching for, right? That, ladies and gentlemen, was a rhetorical question. If we then buy back the option at a lower price and sell our shares at a loss, the two positions will cancel each other and now we simply wait to collect the dividend. If the option is trading with a delta of “1” then it, too, should decline by a similar amount. The basis of this game plan is to buy the stock prior to the ex-dividend date (date we must own the shares to be eligible to collect the dividend) and then sell a deep in-the-money call option that is trading with a delta of “1” On the ex-date, we now qualify for the dividend and two price changes are expected: both the value of the stock and that of the option drop by the amount of the dividend. These changes are based on the fact that share price does decrease by the amount of the dividend, no argument there. In this article I will evaluate an interesting approach to a strategy recently sent to me by one of our members who read it online. I recently wrote an extensive white paper on this topic located in the “resources/downloads” section of your premium site. Capturing dividends using covered call writing has been a topic on great interest lately.
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