Ex-dividend Day After Action (URS, UNH, MRK)

A quick follow-up to my post earlier this week - I noted that I had three positions with ex-dividend dates of 3/13: MRK, UNH, and URS, and was analyzing the prospects of whether I could expect any of the April covered calls I had written on them to be exercised.

I used the delta value for these options as a proxy for the probability of the call being exercised.  In the case of UNH and MRK, a low delta value made it seem unlikely that the shares would be called away, but the 1.00 delta on URS suggested a 100% likelihood that I could expect action on those shares.  I was partially right about this, as it turns out.

First, before I write about URS, let's consider the trading action on MRK over the last few days.  The delta value was low - below .5 - leading up to 3/13, and the position was out of the money.  On 3/12 there was a big move up on the underlying shares and the option moved to an in the money situation - the delta on the option moved to 1.00.  For a moment there was a chance the shares would be called away.

That did not happen in the end - there is still a month of time value left in the April contract and the difference between stock and strike prices was only marginally higher than the dividend amount.  In the end, I'm still holding MRK with a 44 April contract, and I will collect the dividend on the shares.

Moving on to URS - these shares were in the money by more than $5 as of 3/12, and as I noted above and in the previous post, the 40 April call had a delta of 1.00.  If I held those calls, I would have exercised and taken the dividend and the $5.00+ gain on the shares.  So I thought an early call was likely, and as it turned out, two of the four lots I held were called.

I will post either interim or final results on this position the next time I make an adjustment on the covered call, or when the option is assigned.  However, for now, I'm in a pretty good spot with URS:  half of the position has been sold and a small gain on the shares was recorded, and I collected the dividend on the remaining shares, which are still in the money.

Ex-dividend Day and Deltas on MRK, UNH, and URS

I have three positions that will go ex-dividend tomorrow, on March 13:  MRK, UNH, and URS, and each has an April covered call written against it.  I thought I might take a quick look at the deltas on these positions to estimate whether any of them might be called early – a full month early in this case.

The details of the three positions are:

·         MRK, ex-dividend 3/13, April 44 call out of the money

·         UNH, ex-dividend 3/13, April 57.50 call out of the money

·         URS, ex-dividend 3/13, April 40 call in the money

I looked up the Deltas this morning and found that the MRK contract is 48%, the UNH 17%, and the URS is 100%. From this I conclude that the $130 I will collect from MRK and UNH is safe, but the URS dividends, totaling $84, may go to some new owner if the calls are exercised today. 

It still seems a long way out for an early call, but it is reasonable to think that the URS shares could be called away.  I’ll watch carefully and report in my next post.

September 2012 Dividend Forecast

I like to take a look at what dividends I can expect early in the month.  Doing this serves two purposes - first, I get a sense of how much work I need to do with the covered calls to make my revenue target in the Rescue My Account, and second, I can get a sense for whether I will see some early calls on the underlying shares, where I might have a September contract written against an in-the-money position.

Last month I began trying in earnest to get a better sense of how to predict early assignments on ex-dividend dates - I've been lucky a few times before, and since the expedited returns were so good in those instances it is definitely a process I would like to figure out how to manage better and make more predictable.

Of the four "ITM" positions, GE and VIAB have September contracts - in fact, the GE ex-date is the day the September contracts expire.  So, assuming that the stock stays ITM through the term of the contract, it is very likely it will be assigned early, coincidentally, the same day as the contract would have expired anyway.

The VIAB estimate is more complicated, since the ex-date is about 10 days before options expire.  But that position is pretty far ITM compared to the dividend, so I would expect that to be assigned.

As for the other ITM position, ITW, I have a January contract, so it's not going to be called away.  I have an Oct 35 on 100 of the URS shares, so that portion of that 400 share holding could be called also.

I'll post again about some of the analysis I have been doing on this process later in the month.  We'll see how the findings hold up with these positions as well.  More to come.

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.

June 2012 Dividends Forecast

I haven't been the most consistent about putting a post up on the topic of dividends.  However, since last month and this month have included ex-dividend dates on every position in the Rescue My IRA portfolio, it is hard to escape the fact that this is a very important component of the strategy in this account.

The table shows the seven current positions in the account that will go ex-dividend and the date that will happen, along with the total dividend expected based on the number of shares.  At the time of this posting, URS has not gone ex-div officially; however, it did close below my covered call strike price today and is no danger of being called away before the ex-date, so I will receive the dividend when it is paid.

For the purpose of calculating returns, I count the dividends in the month they go ex-dividend as long as the shares are not called away from me.  That's a transaction I don't mind, since it usually means that I can record a share gain earlier than expected.  Unfortunately, in the market these days, that isn't likely to happen over the next couple of months.

I do expect things to improve over the course of the next quarter - in August and September when the ex-dividend dates roll around again.

Until then, I'll have to be satisfied with the $424.00 I expect to collect from dividends this month - that is a total return of 0.33% on the account. I've already had a lot of covered call premiums too - but that post will wait until the end of the month.

Quick Update - May Dividends

Yesterday was the final ex-dividend date for holdings in my Rescue My IRA account.  I've included a snippet of the little table I use to track dividend payments every month here on the left.

The PSX shares that were spun off out of COP are included at the value I sold them for...when all is summed, there was a total return of nearly $1,900 this month, or nearly 1.5% on my December statement value.  If the PSX is left out, the value of the dividends falls to around 0.3%, which would likely annualize out to between 2 and 4%, which is my goal in the account for income sourced out of dividends.

I had hoped that three of these holdings - GLW, NOC, and ADM, specifically - would be close to their strike price at the ex-dividend date, but that wasn't the case this month.  I would have some good capital gains to show for those, but it didn't turn out that way.

Still a couple of trading days left to May - we'll see how it goes in the market, but I think I'm going to quietly finish out the month without any more transactions.

If not, the next post will be the monthly wrap.  BTW - enjoy the new video at the top of the page.

May 2012 Dividend Forecast

I'm waiting for my April statement to be available on-line so I can post monthly results for the account.  Meanwhile, I've been taking a look at the month ahead, and since I remembered that February was a big month for dividend payments, thought I might put together a quarterly forecast, since many of the positions should be due for an ex-dividend date this month.  What I found is shown in the little graphic to the left.

Just as with February, it does appear that I can expect a good share of the earnings in May to derive from dividends - in fact, I can forecast over $500 in earnings, or a return of approximately 0.42%, nearly half my monthly goal, from dividends.

I noted that because I have a couple of positions that are either in-the-money or near-the-money, the likelihood of an early call is definitely there for some of the stocks.  If these calls are assigned, the returns reduce by more than $200 - not quite 50% of the expected payments.

On the other side of the coin, and early call means a stock gain. The contracts on these positions include calculated stock gains of between $260 and $540 per position.  If those contracts are exercised, I'll have a good May, indeed!