Weyerhaeuser Option Hedged Dividend Capture (WY)
With a review one may find many stocks worth investing in offering dividends. Also, dividends can be a very good and steady source of revenue and with each dividend payment received; investors continue to lower the original risk.
Weyerhaeuser Company, a forest products company, grows and harvests trees, builds homes, and manufactures forest products worldwide. It grows and harvests trees for use as lumber, other wood and building products, and pulp and paper. The company was founded in 1900 and is headquartered in Federal Way, Washington.
Weyerhaeuser Co (NYSE:WY)
Dividend Amount: $0.15
Ex-Dividend Date: May 9, 2012
I review many call strikes and estimate the expected probabilities based in part on Beta, Bid, Offer, Volume traded the current day, open interest, and time value / implied volatility. Call options offer some protection from possible adverse moves in the stock price and provide offset revenue when the options do not fully cover down moves in the stock. Income is welcomed, but not needed from option premiums, so a break even from option premiums received/stock losses ratio is a win.
I generally hold any given position with a yield of 2.9% and dividend of $0.15 for about 12 days depending on the timing of the option expiration date and the day of the week of the ex-dividend. When learning a new trading strategy it is better to use a simulated trading account first. It is easy to make mistakes when starting out on a new strategy and mistakes cost a lot less with a simulated account. After a level of confidence is built, then it may be time to move into a real money account.Weyerhaeuser Co upcoming stock dividend appears to be attractive and worth the time and effort to capture. A requirement I have is 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 object to an early exercise notice (which does happen from time to time, but profitable if everything is done according to plan).
In combination with my buying Weyerhaeuser stock and after checking company updates, offer to sell the May $19.00 strike price or lower call for $0.21 over the intrinsic value. The option may get exercised early for a gain. In almost all cases I will sell the call option first to ensure the stock option leg is complete first. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near $0.06, plus the dividend earned. It is important to sell the call option hedge at or near the asking price for at least the minimum amount over intrinsic value. I will not want to try putting on the hedge unless the sale of the option (hedge) will provide at least the full $0.21 over intrinsic value. If my shares get called away the day before they trade ex-dividend as a result of the option buyer wanting the dividend I will make about $0.21 Not all that great, but not bad for about a week of owning the stock. The most I can make is $0.36 if I hold the covered call through option expiration day and the stock gets called away.
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. Learn more about stock options by clicking here.
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. You may want to use this article as a starting point of your own research with your financial planner.