That’s bad for buyers, but great for sellers like us. With each day that passes, call and put options (the rights to buy or sell a stock at a certain price) decay in value. Speaking of options, they are a better way to practice the dividend payout capture we’re seeking. If there is no major inefficiency in a dividend stock’s price at any given moment, how exactly are we supposed to exploit it? We should buy and sell puts and calls to magnify the price ticks that occur before and after the dividend date.īut again, we’re back to our original problem. “True believers” in the strategy will argue that the real way to employ it is with options. What’s in a Name? Underperformance in This CaseĪll right, let’s stop being so basic ourselves. Misguided dividend capture investors would have been better off buying a high quality income fund such as the Vanguard High Dividend Yield Index: Supposedly they look for high quality dividend stocks and time their entries using “technical analysis to identify rates of change, trend input, cycle analysis and economic factors.” To be honest I’m not actually sure what the fund does. Then we have the Rational Dividend Capture A fund, which employs the name but not the strategy. Their net effect is the “market” pricing in the future dividend at any given moment. They’ve been bidding the price up slowly for weeks and even months. Well, again, we’re not the only investors who have this idea. Let’s buy the stock a week or two ahead of its dividend date. In fact, the stock is probably “overpriced” by the amount of the dividend it’s about to pay! They already own shares and they are selling at an inflated price. We’re just trying to capture the dividend without holding the stock for very long.īut can we really buy a stock the day before its dividend date and pull this off? Unfortunately for us other investors have thought of this. It does not store any personal data.Money for nothing and our yield for free. The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. The cookie is used to store the user consent for the cookies in the category "Performance". This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. The cookies is used to store the user consent for the cookies in the category "Necessary". The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". The cookie is used to store the user consent for the cookies in the category "Analytics". These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly. Now, it is not a good time to sell put spreads on FAANG stocks because they are all overvalued or fairly valued except Amazon and Facebook (check the dividend and growth stock database for the fair values: ). It is safe to sell put spreads on undervalued FAANG stocks. If they do not expire worthless, I would roll them into the future because eventually they will expire worthless in case of FAANG stocks. I would rather sell put spreads with 80-100% ROC per month on FAANG stocks as long as the underlying stock is fundamentally undervalued instead of selling covered calls. My buying power is available only once at any given time and I will certainly not use it for selling covered calls due to the low return of 1-2% per month. If you want to hold them for the long term, don’t sell covered calls, it will be painful when your stocks are called away and the stocks keep moving higher. FAANG stocks are growth stocks and they move quite a bit.
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