Wednesday, August 8, 2012

August Dividend Forecast

In the monthly forecast section of my July results post, I mentioned that I expected August to be a busy month for collecting dividends.  I went back and did a quick analysis of my positions that had declared for the month of August and found that there are six stocks that will go ex-dividend this month - as shown in the table to the right.

Since I write covered calls on every position I hold, I did a second bit of analysis to look at whether the position is In-the-Money (ITM) or Out-of-the-Money (OTM).  I found that I have 3 ITMs and 3 OTMs.

Normally, I expect an ITM position to be called away on the ex-date, as long at the stock is trading at the stock price plus the dividend amount.  Last month, I saw an exception to this on the MAS position - that one went ex-dividend early in the month of July and was ITM by more than the dividend amount, but the stock wasn't called away.  It was still a good trade when the option was assigned anyway a few months later.

Now back to my analysis of the August ex-dates.  For the IP position, where I have an August contract in place, I designed the trade so that an early call was possible, and it looks like that will be the case, assuming the stock continues to stay above $33.27 or so.

The other ITM positions - CSX and WAG, are a little more difficult to predict.  In the case of CSX, it is entirely likely the stock will be called away this time if it stays ITM through the ex-dividend date.  I'll be fine with that - as I have written many times, CSX is a train that keeps on rolling.

WAG, on the other hand, is harder to predict.  It is comfortably ITM, but the option is for January, so there are still 180 days to expiration.  There is a lot of time value in the option contract, so holders are likely to let the option run rather than to call the stock for the dividend.  It is better for me if this were called early, but it's more likely that I will collect the dividend - glad to, by the way - and my money will rest in the position for a few more months.

Of course, if any of these positions are called away during August, I will write a closing post on them.

No comments:

Post a Comment