WellPoint, Inc. Dividend Capture ($WLP)
WellPoint, Inc. (WLP) Yield: 1.51%
Dividend Amount: $0.25
Ex-Dividend Date: December 07, 2011
Beta: 0.97
WellPoint, Inc., through its subsidiaries, operates as a health benefits company in the United States. It offers various network-based managed care plans to large and small employer, individual, Medicaid, and senior markets. The company was founded in 1944 and is based in Indianapolis, Indiana.
There are numerous dividend capturing techniques, and I have utilized just about every method known. One of the most important aspects to success is limiting the stocks to only the very best candidates. Using call options for hedging is one of my favorite and easy to understand methods of capturing gains through options and dividends. In my dividend capturing, I will typically hold on to a position for about a month or in some cases longer. This method can be used to capture more than one option by holding for longer than three months, or more.
In this article we will go over an upcoming dividend that I may capture with a minimum amount of risk. The criteria that I use is that I must be able to sell a call option in either the front, or first back month that is in the money, and with enough premium that I will not mind getting exercised early (which happens often and can be a good thing if the trades are executed correctly).
Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the December $42.50 strike call for $2.59 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about about $0.46.
The current book value per share is 67.92.
The company has falling revenue year-over-year of $58.80 billion for 2010 vs. $65.03 billion for 2009. The bottom line has falling earnings year-over-year of $2.89 billion for 2010 vs. $4.75 billion for 2009. The company's earnings before interest and taxes are falling with an EBIT year-over-year of $4.35 billion for 2010 vs. $7.40 billion for 2009.
At $67.50, the price is currently below the 200 day moving average of 69.74, and above the 60 day moving average of 66.43.
From a month ago, the stock has decreased in price -4.11%, and changing from last year at this time 15.71%.
The stock has done very well as compared to the overall market. When comparing to the S&P 500, the year to date difference is 22.55%.
Remember, you must buy a stock at least three business days before the record date (at least one business day before the ex-dividend date) to qualify for a dividend.
My last step (completed before making a trade on the same day) is to check company announcements, and news sources for possible events that may cause the stock price to move. This is especially important during earnings season.
I research the different call options and calculate the expected probabilities based on Beta, Bid, Offer, Volume traded the current day, open interest, and time value / implied volatility. The Options offer some level of protection from down moves in the stock, and provide revenue to cover the times that the options do not fully cover down moves in the stock. Income is not needed from the option Premiums, so a break even from premiums received/stock losses ratio is a win.
I use a proprietary blend of technical analysis, financial crowd behavior, and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. Nothing in the article should be considered investment advise, but you may want to use this article as a starting point of your own research with your financial planner.
