Tuesday, February 14, 2012

St. Valentine's Day Massacre:

It seems everyone, both good and bad, seems to be Bullish these days - not the best environment for DITM, but safe! It actually helps build a larger cushion for existing trades when stocks rise. A couple of blogs ago I mentioned Joe Granville and how to handle his Crash scenario with the DIA. I want to expand on that for tyros just getting into DITM. The DIA does not yield too much, but with a little extra effort one can time it so the weak months of dividends (Jan.,Apr., July, Oct.) are excluded - they contains the stocks of the 30 DJIA that pay the least that month.
Example, Do a buy/write in Feb.-sell the May or June call - missing Jan and maybe getting Apr.'s called away. One can also sell a put (?) until that ex-D date arrives, getting money while you wait and buying it cheaper.
One upcoming Annual dividend - Novartis (NVS) goes ex-D Feb.27; selling the July 55 call ITM one can get an annualized 14% return -depending on the Swiss income tax deal with the US.
A couple upcoming candidates: MXIM and MCHP go ex-D on the 17th; KKR, COP and MAT also up shortly - to buy or (in my case) roll over the call, if feasible.
Knowledge is knowing a tomato is a fruit; Wisdom is not putting it in a fruit salad.

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