Thursday, January 24, 2013

Woulda, Shoulda, Coulda

Here's am interesting, hypothetical (since I didn't do it), edifying trade to digest:

In my testing of DITM over the past 4 years, I considered annual dividends, with mixed results - usually depending on how they traded after the buy/write. I saw that Siemens (SI) was again coming up ex-D on Jan.24 (today) so I played it on paper, although I did make money last year on it after waiting it out. Here is the hypothetical trade
Jan.17 - buy stock $110.70, sell call (theoretical or mark price in the middle- wide spread) $5.95, for a net $104.75 before the $9 comm.
Jan.24, after ex-D- $107.87 (and rising), buy back call at 5.35 - net  $102.52, add in the dividend to receive -$3.90= $167 on 100 shares. 1.6% in a week. Or one could wait for April expiry. If SI is above 105 then, profit would be:$415, or 4% in 3 months or 16% annualized (if done 4 times- theoretical).  BTW - 1.6% annualized is 83%!!

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