High-Yielding Dividend Captures: Right Companies Can Offer Superior Returns:
NEW YORK (TheStreet) -- Many high-quality companies offer quarterly dividends to investors. Dividends may be a great source of income because with each payment shareholders can lower their investment cost, as long as they are shareholders on the required day of record.
In my portfolio, although much of the gains will come from dividends, option decay will provide a big part of my gains. Option decay, or Theta, is the loss in time premium between two dates. This is especially true in lower-yielding stocks, since higher-yield options have lower-time premiums, all else being equal.
When picking dividend stocks using an options hedge, companies such as Kraft become low-hanging fruit.
Let's say I write an option today to you for $1 with an expiration in two months. After one month, you would expect the value to drop in half (not actually, but you get the idea). If I write a covered call with 30 cents in time premium and the option buyer exercises the option in front of the ex-dividend date, I get to keep the time premium paid (because the buyer is exercising).
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Click to view a price quote on DOW.
Click to research the Conglomerates industry.
NEW YORK (TheStreet) -- Many high-quality companies offer quarterly dividends to investors. Dividends may be a great source of income because with each payment shareholders can lower their investment cost, as long as they are shareholders on the required day of record.
In my portfolio, although much of the gains will come from dividends, option decay will provide a big part of my gains. Option decay, or Theta, is the loss in time premium between two dates. This is especially true in lower-yielding stocks, since higher-yield options have lower-time premiums, all else being equal.
When picking dividend stocks using an options hedge, companies such as Kraft become low-hanging fruit.
Let's say I write an option today to you for $1 with an expiration in two months. After one month, you would expect the value to drop in half (not actually, but you get the idea). If I write a covered call with 30 cents in time premium and the option buyer exercises the option in front of the ex-dividend date, I get to keep the time premium paid (because the buyer is exercising).
...
Click to view a price quote on DOW.
Click to research the Conglomerates industry.
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