7 Dividend-Capture Ideas Using an Option Hedge
Using call options for hedging is one of my favorite and easy-to-understand methods of capturing gains through options and dividends. This method can be used to capture more than one option by holding them longer than three months.
I sorted by highest yield first and Ares Capital(ARCC) is the highest with a yield of over 9%. Ares Capital is a credit-focused private investment adviser.
Dividend Amount: 37 cents
Ex-Dividend Date: June 13, 2012
Strategy: Buy Ares Capital stock and sell the June $15.00 strike or lower call for 25 cents over the intrinsic value. I sell the call option first to ensure the stock option leg is complete.
The option strike has an encouraging open interest over 800.
When learning a new trading strategy, it is better to use a simulated trading account first. Stockpickr is a great tool to practice new strategies and learn about the market. I use Stockpickr and recommend it. 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.
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 don't want the option hedge unless the sale will provide at least the minimum 25 cents over intrinsic value.