WMB Covered Call Dividend Capture – Assigned day before ex-div, Return on Capital 2.6% in 2 days or 476% annualized…..but no dividend

On Mar 9 we established a covered call on WMB by purchasing 500 shares of WMB at $24.16 and selling a Mar 12 $23.50 Call. Share price appreciated after the purchase. On 3/10 we bought back the Mar 12 $23.50 covered call and sold the Mar 12 $24 covered call to avoid the shares getting called away before the ex-div date of 3/11. The stock closed at $23.99 on 3/10. Last night the shares got called away as the dividend of $.41 was too attractive to the holder of the short call. Unfortunately we don’t get to collect the 500 shares x $.41 dividend but the transaction generated a good return for a 2 day investment. To avoid assignment we could have bought back the Mar 12 $24 Call and sold the Mar 12 $25….but we didn’t check the position prior to market closing and thought the earlier roll from $23.50 to $24 had protected the dividend.

A $385 profit in an account of any size isn’t very significant on a “one off” basis. If the practice of “capturing dividends” works over we will increase the number of shares/options in the position. Main concern is a “bad” week when the market/stock drops more than the protection offered by the dividend and we incur a large loss that wipes out the cumulative gains from the past weeks.

The trade ideas are coming from a screen on Optionsamurai.com (paid subscription). The screen identifies candidates for the strategy and recommends a strike price. The strike prices are mostly “at the money”. Writing “in the money” options would increase the downside protection but it would also reduce the return. Plan is to identify 5 to 10 candidates for the strategy each week. For tax purposes I would prefer to capture the dividend versus getting the shares assigned and generating a short term capital gain (although any “gain” is preferred versus a loss!).

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