I did a trade last Wednesday, and forgot to write it up, so here it is. This is from last week.
Last Wednesday 6th September 2023 was the day before BHP went ex-dividend. So if you were holding stock in BHP on that day you would receive the dividend. Now typically, the price will go up in the week or so leading up to this date ... and then the price will drop the next day (7th Sept - the ex date), by at least the amount of the dividend. Makes sense, right? If you buy tomorrow you won't get the dividend, so buying stock will be cheaper by that amount.
Now I happen to be holding just over 1200 BHP in one of my accounts, and would like to receive the dividend (if I sold on the 6th Sept, I would not get it, but I'd get a nice price on the sale) but I would also like to gain from the price being high at the moment. So I wrote some calls against 1200 BHP that I already own.
BHP was trading around $46.00 on the 6th, so I wrote some November $46.01 calls and received $1.29 to do so (%2.74 return). Because I didn't sell the stock, I'll also receive the $1.25 dividend that will be paid at the end of this month. Not bad right? Normally, I'd expect an option that is about 70 days from expiry and at the money to bring in more than 2.74%, but the option price has already got the dividend factored into it. To be honest, I didn't write this one with a view to holding it to expiry. The plan here is to hold it until BHP drops into the $42-$42.50 territory, then buy the option back for cheaper. If I can buy it back for $0.50 I will have still made $0.79 on top of the dividend. I can then look to write some better calls afterwards. I'll wait and see. It's possible I'll hold to expiry - it just wasn't my initial plan to do so.
As it's been a week since, I can show a chart of what happened afterwards:
The crosshairs are on the 6th September, the day I wrote the calls, and you can see the 'D' on the 7th showing the drop due to the dividend. Notice it fell by significantly more than the $1.25 dividend entitlement which is pretty common. Anyway, for now I have positions open on both sides. I'll be forced to sell my holdings if the price goes above $46.01 by November, and I'll be forced to buy more if the price drops below $41.92 next Thursday. I'm fine with that.
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