Dividend Capture With Covered Calls


covered call strategy


Imagine an strategy with stocks and options and earn money even when the stock price does not rise. We show you to Capture dividend With Covered Calls

“The only thing better than an asset that produces an income stream is an asset that produces TWO income streams.”

– typical covered call investor

This article shows how to generate two ways of income. You can profit from a rise of the stock and receive option premium from a single asset.


Who pays Dividends

Most of the big companies pay dividends. In fact, 84% of the S&P 500 companies are paying dividends. There are some notable companies hat do not pay dividends. I will give you an example: Amazon, Facebook, and Google. These large companies are reinvesting their profits so that they can expand more.

Current Dividend Yield

The S&P 500 average yield is 1.94%. It is Relatively low but not surprising given an 8 year bull market that has increased stock prices, as well as the current low interest rate environment. In this market conditions companies don’t have the need to pay high dividends to attract investors. An average Yield 1.94% is low, many S&P 500 companies pay more than that.


The top 10 Dividend Yields

In this list the stocks pay nearly double the average dividend yield.

Company Symbol Price Est Div Div Yield
American Electric Power AEP 64.76 2.44 3.77%
Consolidated Edison ED 74.52 2.78 3.73%
Gap GPS 25.03 0.93 3.72%
ExxonMobil XOM 81.89 3.04 3.71%
Exelon EXC 35.92 1.32 3.67%
SCANA SCG 66.96 2.45 3.66%
Weyerhaeuser WY 33.98 1.24 3.65%
WEC Energy Group WEC 58.07 2.11 3.63%
International Paper IP 52.76 1.90 3.60%
Public Storage PSA 227.73 8.20 3.60%

3.6% annual Income

If all you wanted was a 3.6% annual profit, you could just buy a portfolio of stocks that had an average dividend yield of 3.6% per year.

But if you want even more income, then you can sell a call on your dividend stocks.

What are covered Calls

A trader who owns stocks can also write a call against it. For every 100 shares you can sell one strike above the current price. By doing so the trader receives option premium. If the stock price does not reach the strike price he can keep the entire premium. So the the trader will benefit from this strategy even when the stock price does not move.

Ex-Dividend Date

A stock’s ex-dividend Date is the first day the stock trades without the dividend. In order to receive the dividend you must own the stock before the ex-dividend date.

For example, if a stock has an ex-div date of March 5, you must own the stock by close of market on March 4 in order to receive the dividend.

If a trader buys the stock on the ex-div date he will NOT receive any dividend.

If you want to hold the stock for as little time as possible and still get the dividend, you can buy the stock just before the market closes the day before the ex-div date and then sell the stock just after the market opens on the ex-dividend date. You may make or lose a little on the stock, but you will get the dividend for sure.



Why Ex-Dividend Dates Matter To Covered Call Writers

Sometimes covered call writers have to deal with an early exercise. that the buyer of the option exercise his right to purchase the stock before the option expiration date. They do this so they can get the dividend. It usually happens to option that are in-the-money. Probably the options will be on the day before the ex-dividend date. But normally it will only happen if the amount of time premium remaining in the option is zero or a few pennies.


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