Big Dividend Captures

Dividend capturing is comparatively new to the retail shareholder. Prior to the Internet, transaction expenses, limited option liquidity and lack of information crafted barriers, thwarting investors from exploiting this market edge. The most essential requirement to obtain a dividend is to be a shareholder on the necessary day of record. Options can be used to capture multiple dividends by retaining the stock and option longer than three months.

For writers of options, Theta (time decay of option premium) is their greatest comrade, and for buyers, the cruelest enemy. Options are a decaying resource much like milk, and using an option hedge while holding a stock can be profitable, even if the stock doesn't move higher. This is especially true in higher-yielding stocks, since higher-yield options have lower-time premiums, all else being equivalent. Also, the longer I retain a covered-call position (like two weeks with a front-month option, for example) the lower the time premium is worth, all else being equal.

Source: The Street

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