Saturday, March 3, 2012

Be Not Hasty - NVS Dividend Grab

Last week I wrote about a trade I did quickly to be a shareholder of NVS in time for it's annual dividend payment of $2.46.  That's a nice chunk of change and I thought it would be worthwhile to go for it, so I made a trade.  I moved so quickly, in fact, I forgot to factor in the price drop that comes on the morning of the ex-dividend date.

I started the Rescue My IRA account with the goal of being more aggressive about investing than I have in the past, but every position has to make a profit - some less, some more, some minuscule and some generous - but profitable, nonetheless, and so far that is working. On the upside, NVS is a pretty strong stock that meets my investment criteria, so holding it for a longer than average term doesn't bother me, and I will make some money on it, so we're good.

Still, when the ex-dividend price drop hit, the stock went down from my basis of $57.36 to $55.  So I am looking at biding time in this position.  I have done a roll-out of my original 57.50 Mar and rolled down also, to a 55 Apr.  That will extend my holding period to about 60 days, and bring my annualized return down some, below where I would like to see it, but I'll continue to monitor and see what else I might do to improve my profits.  

Here's the analysis:



2/25/2012 Bought 100 shares at average share price $57.36 (total $5,736.00)
2/25/2012 Sold 1 NVS Mar 2012 $57.50 at $0.30 (total $21.74)
2/28/2012 BTC 1 NVS Mar 2012 $57.50 at $0.05 (total - $13.74)
3/2/2012 STO 1 NVS Apr 2012 $55.00 at $0.84 (total $75.74)

Net Profit:

1) Options Income:  = $84.23
2) Dividend Income: Ex-date was 2/27, $246.00
3) Capital Appreciation if assigned at $57.50:  -$253.11

Total Net Profit if Assigned and dividend collected:  $84.23 + $246 - $253.11 = $77.12
Absolute Return on Investment: ($77.12/$5,736.00) = 1.34%
Annualized Return if Assigned (60 days):  1.13%*(365/60) = 8.18%
Friday's closing price was out of the money for the 55 strike in the current option.   

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