FAST Trade Concept

Malcolm Myles on

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Malcolm Myles on

I should add that my research on FAST is that it is too richly valued and most every article in the web suggests the same - this is a great company and has paid me very well for buying and holding over the years. Its just right now, it is too expensive for an investor to start a position. I've seen "Avoid", "Sell", "F", etc at numerous sites.

I believe that makes the stock a candidate for trading CC with the expectation that it will trend to a more sustainable price in the mid 30s. I'm going to be holding my existing position in the company, but these 600 shares would be my "trading shares". I don't expect to keep them, just the dividend and premium.

Without the dividend and premium, I wouldn't consider buying the shares.

Malcolm

On 11/21/2012 7:59 AM, Malcolm Myles wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Sharon McAllister on

Hi Malcolm,

Been there. Done that. Read this: Contract Adjustments for Special Dividends When Trading Stock Options

Eventually, the CBOE will post a contract adjustment at this URL.

Your FAST idea may make an interesting paper trade for a learning experience. I would not try this with real money. You could also paper trade some other special dividend announcements to hammer in the learning experience. Note the key phrases: paper trade and learning experience.

Sharon

On Wed, Nov 21, 2012 at 9:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Sharon McAllister on

OK, so that reinforces the point I made earlier. Our messages passed each other in cyberspace...Sharon

On Wed, Nov 21, 2012 at 10:17 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

I should add that my research on FAST is that it is too richly valued and most every article in the web suggests the same - this is a great company and has paid me very well for buying and holding over the years. Its just right now, it is too expensive for an investor to start a position. I've seen "Avoid", "Sell", "F", etc at numerous sites.

I believe that makes the stock a candidate for trading CC with the expectation that it will trend to a more sustainable price in the mid 30s. I'm going to be holding my existing position in the company, but these 600 shares would be my "trading shares". I don't expect to keep them, just the dividend and premium.

Without the dividend and premium, I wouldn't consider buying the shares.

Malcolm

On 11/21/2012 7:59 AM, Malcolm Myles wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Paul Madison on

Hi Malcolm,

As Sharon has mentioned several of us have played with doing Buy-Writes (that is buying the stock and writing a Covered Call) in order to capture a dividend. Sometimes it has worked nicely other times not so much.

Some of this Sharon has alluded to or pointed to in articles but I thought I would reiterate that there are several things you need to know and to take into consideration.

First on special dividends, any options written before the ex-dividend date will automatically adjust in price on the Ex-Dividend date. So a $42 Call becomes a $41.50 Call on the Ex-Dividend date. So you will be called away $.50 lower than you think you are going to be called away.

Second, the market will adjust for the special dividend on the ex-dividend day as well. So in general you will see the price move down by about the amount of the special dividend, in this case the $.50.

Third remember that one of the few times that you might get called away early involves dividends. If the owner of the CALL option believes it is in his interest to grab the dividend, he can exercise on the day before the Ex-Dividend so that he is the owner who will receive the dividend.

The last thing to remember is that you do own the stock and it will not automatically get called away. If the stock price drops, the drop can be greater than the dividend and the premium on the call option that you have collected. You say you think $41 is a high purchase price so this is a risk that you might not really be comfortable taking. In other words, it still comes back to being sure that the buy price is a level that is justified fundamentally and not one you are doing just to get the dividend.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Wed, Nov 21, 2012 at 10:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Malcolm Myles on

Thanks Sharon (& Paul),

Two things floating in my head: All that glitters is NOT Gold and... Tricksie hobbitish, nasties, tricksie hobbitish.

I'll paper trade this and learn the rules.

Thanks again,

Malcolm

On 11/21/2012 8:17 AM, Sharon McAllister wrote:

Hi Malcolm,

Been there. Done that. Read this: Contract Adjustments for Special Dividends When Trading Stock Options

Eventually, the CBOE will post a contract adjustment at this URL.

Your FAST idea may make an interesting paper trade for a learning experience. I would not try this with real money. You could also paper trade some other special dividend announcements to hammer in the learning experience. Note the key phrases: paper trade and learning experience.

Sharon

On Wed, Nov 21, 2012 at 9:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Sharon McAllister on

So, Paul.....

in your copious free time perhaps you can put together a Cool Club presentation to show how this works out if you try for a special dividends capture as Malcolm suggested.

Let me add one more thing to this discussion: the strategy is even more dangerous in a down-trending market.

Sharon

On Wed, Nov 21, 2012 at 10:42 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Thanks Sharon (& Paul),

Two things floating in my head: All that glitters is NOT Gold and... Tricksie hobbitish, nasties, tricksie hobbitish.

I'll paper trade this and learn the rules.

Thanks again,

Malcolm

On 11/21/2012 8:17 AM, Sharon McAllister wrote:

Hi Malcolm,

Been there. Done that. Read this: Contract Adjustments for Special Dividends When Trading Stock Options

Eventually, the CBOE will post a contract adjustment at this URL.

Your FAST idea may make an interesting paper trade for a learning experience. I would not try this with real money. You could also paper trade some other special dividend announcements to hammer in the learning experience. Note the key phrases: paper trade and learning experience.

Sharon

On Wed, Nov 21, 2012 at 9:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Jim Thomas on

Keep in mind that this is the sort of situation where the Call holder may decide to capture the dividend by exericsing the Call on the day before the ex-dividend date, requiring you to sell the stock. If that happened you would not be entitled to the dividend.

-Jim Thomas

----- Original Message -----

From: Malcolm Myles

To: COOL_Club@bivio.com

Sent: Wednesday, November 21, 2012 7:59 AM

Subject: [cool_club] FAST Trade Concept

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

Malcolm Myles on

Hi Sharon & Paul,

I've read the links and still thinking about this...

I understand that the Strike price will be adjusted down in a direct relationship with the stock price on the Ex-dividend date (Dec 7). It is the premium and the dividend that I'm after. If I sell the CC ITM, that premium is mine without any surprise reduction. The only things I need to consider in my calculations is a reduced strike price (-0.50 on any posted strike prices now showing), and the likely hood that I get called away before ex-dividend. So I don't include the dividend in my calculations. Cherry on the cake if it comes through.

I think that Fastenal will continue to trend sideways or drop into the new year. If I put on the trade, I see the following:
Option Expires = premium + dividend + holding stock
Option Exercised early = premium - stock purchase + stock call price (back to cash, no div)
Option BTC trade = I don't know if I'd do this as conditions are likely not going to be met.

If exercised early, the premium I'm looking at would offset the stock transactions with a nice fat APR and premium. If I'm wrong about FAST and it goes up, this is what will happen. If I'm right and it goes down, I keep it all - stock, dividend and premium.

I just don't see the downside of capturing the premium in this situation, but I'm concerned that I'm missing something with both of your cautionary words... sorry to be so dense, still a rookie.

Thanks for the dialog - walls in my office haven't been responsive to my verbal inquiries...

Malcolm

On 11/21/2012 8:31 AM, Paul Madison wrote:

Hi Malcolm,

As Sharon has mentioned several of us have played with doing Buy-Writes (that is buying the stock and writing a Covered Call) in order to capture a dividend. Sometimes it has worked nicely other times not so much.

Some of this Sharon has alluded to or pointed to in articles but I thought I would reiterate that there are several things you need to know and to take into consideration.

First on special dividends, any options written before the ex-dividend date will automatically adjust in price on the Ex-Dividend date. So a $42 Call becomes a $41.50 Call on the Ex-Dividend date. So you will be called away $.50 lower than you think you are going to be called away.

Second, the market will adjust for the special dividend on the ex-dividend day as well. So in general you will see the price move down by about the amount of the special dividend, in this case the $.50.

Third remember that one of the few times that you might get called away early involves dividends. If the owner of the CALL option believes it is in his interest to grab the dividend, he can exercise on the day before the Ex-Dividend so that he is the owner who will receive the dividend.

The last thing to remember is that you do own the stock and it will not automatically get called away. If the stock price drops, the drop can be greater than the dividend and the premium on the call option that you have collected. You say you think $41 is a high purchase price so this is a risk that you might not really be comfortable taking. In other words, it still comes back to being sure that the buy price is a level that is justified fundamentally and not one you are doing just to get the dividend.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Wed, Nov 21, 2012 at 10:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

--

Laurie Frederiksen on

Malcolm,

I think the issue with your first option will be if the stock price goes way down.

You've gotten the dividend and the premium but you may have lost way more than that if you didn't want to keep holding the stock.

BTW, if you keep sending these great posts with zinger lines in them ("walls in my office haven't been responsive to my verbal inquiries"), we're going to have to start a page of "Malcolmisms". Thanks for sharing your experiences in such a fun manner. They give me a laugh every time I read one.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

On Wed, Nov 21, 2012 at 12:38 PM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi Sharon & Paul,

I've read the links and still thinking about this...

I understand that the Strike price will be adjusted down in a direct relationship with the stock price on the Ex-dividend date (Dec 7). It is the premium and the dividend that I'm after. If I sell the CC ITM, that premium is mine without any surprise reduction. The only things I need to consider in my calculations is a reduced strike price (-0.50 on any posted strike prices now showing), and the likely hood that I get called away before ex-dividend. So I don't include the dividend in my calculations. Cherry on the cake if it comes through.

I think that Fastenal will continue to trend sideways or drop into the new year. If I put on the trade, I see the following:
Option Expires = premium + dividend + holding stock
Option Exercised early = premium - stock purchase + stock call price (back to cash, no div)
Option BTC trade = I don't know if I'd do this as conditions are likely not going to be met.

If exercised early, the premium I'm looking at would offset the stock transactions with a nice fat APR and premium. If I'm wrong about FAST and it goes up, this is what will happen. If I'm right and it goes down, I keep it all - stock, dividend and premium.

I just don't see the downside of capturing the premium in this situation, but I'm concerned that I'm missing something with both of your cautionary words... sorry to be so dense, still a rookie.

Thanks for the dialog - walls in my office haven't been responsive to my verbal inquiries...

Malcolm

On 11/21/2012 8:31 AM, Paul Madison wrote:

Hi Malcolm,

As Sharon has mentioned several of us have played with doing Buy-Writes (that is buying the stock and writing a Covered Call) in order to capture a dividend. Sometimes it has worked nicely other times not so much.

Some of this Sharon has alluded to or pointed to in articles but I thought I would reiterate that there are several things you need to know and to take into consideration.

First on special dividends, any options written before the ex-dividend date will automatically adjust in price on the Ex-Dividend date. So a $42 Call becomes a $41.50 Call on the Ex-Dividend date. So you will be called away $.50 lower than you think you are going to be called away.

Second, the market will adjust for the special dividend on the ex-dividend day as well. So in general you will see the price move down by about the amount of the special dividend, in this case the $.50.

Third remember that one of the few times that you might get called away early involves dividends. If the owner of the CALL option believes it is in his interest to grab the dividend, he can exercise on the day before the Ex-Dividend so that he is the owner who will receive the dividend.

The last thing to remember is that you do own the stock and it will not automatically get called away. If the stock price drops, the drop can be greater than the dividend and the premium on the call option that you have collected. You say you think $41 is a high purchase price so this is a risk that you might not really be comfortable taking. In other words, it still comes back to being sure that the buy price is a level that is justified fundamentally and not one you are doing just to get the dividend.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Wed, Nov 21, 2012 at 10:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

--

Malcolm Myles on

My Stock Adviser - he doesn't approve of my market trades and prefers I invest in Wooba Tugs, Kongs, grain free cookies and dog food.

I seldom... very seldom... have access to the chair.

Malcolm

On 11/21/2012 11:29 AM, Laurie Frederiksen wrote:

Malcolm,

I think the issue with your first option will be if the stock price goes way down.

You've gotten the dividend and the premium but you may have lost way more than that if you didn't want to keep holding the stock.

BTW, if you keep sending these great posts with zinger lines in them ("walls in my office haven't been responsive to my verbal inquiries"), we're going to have to start a page of "Malcolmisms". Thanks for sharing your experiences in such a fun manner. They give me a laugh every time I read one.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

On Wed, Nov 21, 2012 at 12:38 PM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi Sharon & Paul,

I've read the links and still thinking about this...

I understand that the Strike price will be adjusted down in a direct relationship with the stock price on the Ex-dividend date (Dec 7). It is the premium and the dividend that I'm after. If I sell the CC ITM, that premium is mine without any surprise reduction. The only things I need to consider in my calculations is a reduced strike price (-0.50 on any posted strike prices now showing), and the likely hood that I get called away before ex-dividend. So I don't include the dividend in my calculations. Cherry on the cake if it comes through.

I think that Fastenal will continue to trend sideways or drop into the new year. If I put on the trade, I see the following:
Option Expires = premium + dividend + holding stock
Option Exercised early = premium - stock purchase + stock call price (back to cash, no div)
Option BTC trade = I don't know if I'd do this as conditions are likely not going to be met.

If exercised early, the premium I'm looking at would offset the stock transactions with a nice fat APR and premium. If I'm wrong about FAST and it goes up, this is what will happen. If I'm right and it goes down, I keep it all - stock, dividend and premium.

I just don't see the downside of capturing the premium in this situation, but I'm concerned that I'm missing something with both of your cautionary words... sorry to be so dense, still a rookie.

Thanks for the dialog - walls in my office haven't been responsive to my verbal inquiries...

Malcolm

On 11/21/2012 8:31 AM, Paul Madison wrote:

Hi Malcolm,

As Sharon has mentioned several of us have played with doing Buy-Writes (that is buying the stock and writing a Covered Call) in order to capture a dividend. Sometimes it has worked nicely other times not so much.

Some of this Sharon has alluded to or pointed to in articles but I thought I would reiterate that there are several things you need to know and to take into consideration.

First on special dividends, any options written before the ex-dividend date will automatically adjust in price on the Ex-Dividend date. So a $42 Call becomes a $41.50 Call on the Ex-Dividend date. So you will be called away $.50 lower than you think you are going to be called away.

Second, the market will adjust for the special dividend on the ex-dividend day as well. So in general you will see the price move down by about the amount of the special dividend, in this case the $.50.

Third remember that one of the few times that you might get called away early involves dividends. If the owner of the CALL option believes it is in his interest to grab the dividend, he can exercise on the day before the Ex-Dividend so that he is the owner who will receive the dividend.

The last thing to remember is that you do own the stock and it will not automatically get called away. If the stock price drops, the drop can be greater than the dividend and the premium on the call option that you have collected. You say you think $41 is a high purchase price so this is a risk that you might not really be comfortable taking. In other words, it still comes back to being sure that the buy price is a level that is justified fundamentally and not one you are doing just to get the dividend.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Wed, Nov 21, 2012 at 10:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

--

Theresa H on

Awwwwww... now that's adorable!!

Note: Gee, I'm glad you said that was a chair - I thought it looked like a CRIB! LOL

Happy Thanksgiving

Theresa

On Nov 21, 2012, at 3:29 PM, Malcolm Myles wrote:

<SSPX0145.jpg>

My Stock Adviser - he doesn't approve of my market trades and prefers I invest in Wooba Tugs, Kongs, grain free cookies and dog food.

I seldom... very seldom... have access to the chair.

Malcolm

On 11/21/2012 11:29 AM, Laurie Frederiksen wrote:

Malcolm,

I think the issue with your first option will be if the stock price goes way down.

You've gotten the dividend and the premium but you may have lost way more than that if you didn't want to keep holding the stock.

BTW, if you keep sending these great posts with zinger lines in them ("walls in my office haven't been responsive to my verbal inquiries"), we're going to have to start a page of "Malcolmisms".   Thanks for sharing your experiences in such a fun manner. They give me a laugh every time I read one.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

On Wed, Nov 21, 2012 at 12:38 PM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi Sharon & Paul,

I've read the links and still thinking about this...

I understand that the Strike price will be adjusted down in a direct relationship with the stock price on the Ex-dividend date (Dec 7). It is the premium and the dividend that I'm after. If I sell the CC ITM, that premium is mine without any surprise reduction. The only things I need to consider in my calculations is a reduced strike price (-0.50 on any posted strike prices now showing), and the likely hood that I get called away before ex-dividend. So I don't include the dividend in my calculations. Cherry on the cake if it comes through.

I think that Fastenal will continue to trend sideways or drop into the new year. If I put on the trade, I see the following:
    Option Expires = premium + dividend + holding stock
    Option Exercised early = premium - stock purchase + stock call price      (back to cash, no div)
    Option BTC trade = I don't know if I'd do this as conditions are likely not going to be met.

If exercised early, the premium I'm looking at would offset the stock transactions with a nice fat APR and premium. If I'm wrong about FAST and it goes up, this is what will happen. If I'm right and it goes down, I keep it all - stock, dividend and premium.

I just don't see the downside of capturing the premium in this situation, but I'm concerned that I'm missing something with both of your cautionary words... sorry to be so dense, still a rookie.

Thanks for the dialog - walls in my office haven't been responsive to my verbal inquiries...

Malcolm

On 11/21/2012 8:31 AM, Paul Madison wrote:

Hi Malcolm,

As Sharon has mentioned several of us have played with doing Buy-Writes (that is buying the stock and writing a Covered Call) in order to capture a dividend. Sometimes it has worked nicely other times not so much.

Some of this Sharon has alluded to or pointed to in articles but I thought I would reiterate that there are several things you need to know and to take into consideration.

First on special dividends, any options written before the ex-dividend date will automatically adjust in price on the Ex-Dividend date. So a $42 Call becomes a $41.50 Call on the Ex-Dividend date. So you will be called away $.50 lower than you think you are going to be called away.

Second, the market will adjust for the special dividend on the ex-dividend day as well. So in general you will see the price move down by about the amount of the special dividend, in this case the $.50.

Third remember that one of the few times that you might get called away early involves dividends. If the owner of the CALL option believes it is in his interest to grab the dividend, he can exercise on the day before the Ex-Dividend so that he is the owner who will receive the dividend.

The last thing to remember is that you do own the stock and it will not automatically get called away. If the stock price drops, the drop can be greater than the dividend and the premium on the call option that you have collected. You say you think $41 is a high purchase price so this is a risk that you might not really be comfortable taking. In other words, it still comes back to being sure that the buy price is a level that is justified fundamentally and not one you are doing just to get the dividend.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Wed, Nov 21, 2012 at 10:59 AM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi All,

I'd like some feedback on the cockamamie scheme.

Fastenal (FAST) just announced a $0.50 special dividend payable for shareholders of record Dec 7, paid Dec 21... just in time for Christmas.

Here's my plan:

Buy 600 shares at $41 and immediately write a CC for 42 Jan 13. That way I own the $0.50 dividend in December ($300) and collect the CC Premium for Jan (>$600). If I get called, I've made $900 in two months which I don't think I could do writing CSP and CC in ETFs during the same time.

I'm still a rookie at this trading game having recently shed the Mantle Of Investor so I would like some feed back please.

Malcolm

--

Malcolm Myles on

Dudes & Dudettes,

Against cautionary advice... The Trade is on.

Logic: Fastenal announced a $0.50 special dividend payable Dec 21 (Dec 7 ex-dividend). In order to put the cash position of my portfolio to work and to capture the short term return, I took the following position - a Buy-Write.

B 600 FAST @ $41.05 and STO 6x FAST 01/19/13 (59 days) 39.79 CC @ $2.65
(strike price will be reduced (as well as stock) by $0.50 to 37.29 on Dec 21, used for calculations)

Here's my analysis:

Option expires in January with stock just below strike price, ie worthless: (+premium+dividend+stock) I keep the premium, I collect the dividend on the 600 shares and I have 600 shares of a company I'm very happy to own (basis is still way below market due to other shares already holding). STO more CC.

Option expires in January and the stock is 20-30% below the strike price: (+premium+dividend+stock) ditto, FAST is going to be awesome in five years and I have the premium and dividend. Maybe don't sell CC for a while.

Option price drops to below the strike price after ex-div date: (+premium+dividend-premium+stock) I keep the premium, I collect the dividend, I BTC the option trade and write another out father for my purchase price of 41 - IF the COOL Tool shows it as profitable.

Stock goes like a rocket to 55 and I'm called away on my shares: (+premium-net cost of stock) I keep the premium, I collect my strike price for stock (back into cash) and I watch my remaining shares get very pricey. Dividend may be icing or just a wish.

Option get exercised before expiration because someone wants the dividend more than me: (+premium-net cost of stock) I keep the premium, the stock is called away. I've calculated that my net gain will be $503.40 (I consider this to be the worst case scenario)... no dividend for me.

Underlying: Cash... $24,638.95 (portfolio cash position)
Net premium for CC is $1,577 (out long, deeper in the money, going for the premium)
Dividend will be $300 (cherry on top)
Net cost of stock (purchase-strike price) -$1073.90 (includes commissions)

I've looked at it longer and from different angles than any trade I've ever done. I just don't see a negative risk (okay, Climate Wierding intentionally ignored.) - I either have my cash or I have my stock.

I don't believe the company will go down 20% without the rest of the market falling off the fiscal cliff and if it does, I'll have spent a good portion of my cash to get into a position not at the bottom (like I haven't done that before!). I'll use the remaining to go-a-hunting.

I don't think it will go to 55 due to a Santa Rally (Dude, if you buy your wife a sack of screws... you're nuts! But Duddettes, you buy your nut a sack of screws, you'll have started something!)

I do think I stand to make $503 at a minimum (premium-net cost of stock) with the potential of $1,877 (at an APR of 47%) in 57 more days and sleep well for 56 nights!

I know its off season, but I can't shake the feeling I just hit a stand up triple into the alley by the arches at AT&T Park!

What the heck, I did hit a triple! And it was fun as hell to see the opportunity, work through the problem with my COOL Club education and support, put it on and watch how it winds up!

Hope everyone had a great Thanksgiving... To the leftovers!

Malcolm

ps My most favorite literary line in a book I ready 40 years ago:

Everything in this book may be wrong. (bonus Karma points if you know the book AND author).

Malcolm Myles on

Hi Again.. an update on my Fastenal position:

I had four events that I worked out that I would have to watch for with my option trade. Two of those events have passed without ill effect: I've passed through the Ex-Dividend date without being Called and I've collected the special dividend I was hunting for with this trade... $300 in the bank.

Recently, since Dec 10, the stock, inexplicably, has had a really good run up - closed Friday at $46.18 - a lot of women must have bought bags of nuts and screws for their honeys! Everyone is happy!

My option position, however, has swelled to a hefty $6.80 premium... not going to be buying that back anytime soon! In order to buy back the 6x, it would cost me $4,080... Ha! Take my 600 shares Mr. Market on or before January 19th and I'll be happy with my "cut".

My parents broker was a great guy. Toby never once failed to tell me when I bragged about a stock that he had gotten in at $1. It took some time, but I finally figured out that it isn't what the stock has done or how clever you think you are, it is what is left in your account and not the "what ifs" that matter. FAST has obviously taken off and broken key resistance lines. It may suffer with all the stocks as the market drifts down or falls down in January, but it has been a positive gainer in December and may continue up in January. I 'could have" just sat on the stock, made the dividend and rode the stock to $46... "could haves" come with very nice 20/20 rear view mirrors. I followed the first rule: Don't loose money. And I obeyed the second rule: Obey rule #1. I didn't "loose" an unexpected 12.5% gain ($3,078) in stock appreciation because I sold away that potential gain with my writing of the calls. You can't loose what you don't have.

Net profits in my account so far: $1577 premium and $300 special dividend = $1877 (what I had calculated). Risk - well, I don't think my 600 shares are going to be worth less than my strike price even if there is a significant correction in the stock from Friday's close - I get called away in 15 days at 39.29/sh (in which case, my net profit drops to $803 after selling stock at strike). Or I could get stuck with a pretty nice stock on which I can write more covered calls which isn't bad IF the price drops below my strike. Still have options.

So my trade is still on and my only puzzle is why haven't I been called away early? After all, the price is over $6 above my strike price, why hasn't someone snapped up that difference? I looked at it on the back of a napkin and figured it this way: If you were to exercise the options: buy at $4080, buy the stock at 39.29 for $23,574 and then sell the stock for a profit (at Friday's close) for $27,708... you would net (no commissions) $54... Come and get me Nassim Taleb! You billionaire radical you!

Fastenal has low premiums and trades those premiums in $0.50 strike increments. It isn't a volatile stock based on its option premiums, or isn't supposed to be, another reason to own this stock for the long haul (I have shares not optioned).

That's all that's fit to print or read on this overcast, Winter day. Hope everyone enjoys one last Long Full Moon night tonight (longest full moon of the year was last night - closest full moon opposite the Winter Solstice). We had tired jack rabbits and cold, hungry quail in the yard this morning... Werecoyotes kept everyone up with long serenades... I thought it was another Twilight movie but no vampires.

Malcolm

On 11/23/2012 5:02 PM, Malcolm Myles wrote:

Dudes & Dudettes,

Against cautionary advice... The Trade is on.

Logic: Fastenal announced a $0.50 special dividend payable Dec 21 (Dec 7 ex-dividend). In order to put the cash position of my portfolio to work and to capture the short term return, I took the following position - a Buy-Write.

B 600 FAST @ $41.05 and STO 6x FAST 01/19/13 (59 days) 39.79 CC @ $2.65
(strike price will be reduced (as well as stock) by $0.50 to 39.29 on Dec 21, used for calculations)

Here's my analysis:

Option expires in January with stock just below strike price, ie worthless: (+premium+dividend+stock) I keep the premium, I collect the dividend on the 600 shares and I have 600 shares of a company I'm very happy to own (basis is still way below market due to other shares already holding). STO more CC.

Option expires in January and the stock is 20-30% below the strike price: (+premium+dividend+stock) ditto, FAST is going to be awesome in five years and I have the premium and dividend. Maybe don't sell CC for a while.

Option price drops to below the strike price after ex-div date: (+premium+dividend-premium+stock) I keep the premium, I collect the dividend, I BTC the option trade and write another out father for my purchase price of 41 - IF the COOL Tool shows it as profitable.

Stock goes like a rocket to 55 and I'm called away on my shares: (+premium-net cost of stock) I keep the premium, I collect my strike price for stock (back into cash) and I watch my remaining shares get very pricey. Dividend may be icing or just a wish.

Option get exercised before expiration because someone wants the dividend more than me: (+premium-net cost of stock) I keep the premium, the stock is called away. I've calculated that my net gain will be $503.40 (I consider this to be the worst case scenario)... no dividend for me.

Underlying: Cash... $24,638.95 (portfolio cash position)
Net premium for CC is $1,577 (out long, deeper in the money, going for the premium)
Dividend will be $300 (cherry on top)
Net cost of stock (purchase-strike price) -$1073.90 (includes commissions)

I've looked at it longer and from different angles than any trade I've ever done. I just don't see a negative risk (okay, Climate Wierding intentionally ignored.) - I either have my cash or I have my stock.

I don't believe the company will go down 20% without the rest of the market falling off the fiscal cliff and if it does, I'll have spent a good portion of my cash to get into a position not at the bottom (like I haven't done that before!). I'll use the remaining to go-a-hunting.

I don't think it will go to 55 due to a Santa Rally (Dude, if you buy your wife a sack of screws... you're nuts! But Duddettes, you buy your nut a sack of screws, you'll have started something!)

I do think I stand to make $503 at a minimum (premium-net cost of stock) with the potential of $1,877 (at an APR of 47%) in 57 more days and sleep well for 56 nights!

I know its off season, but I can't shake the feeling I just hit a stand up triple into the alley by the arches at AT&T Park!

What the heck, I did hit a triple! And it was fun as hell to see the opportunity, work through the problem with my COOL Club education and support, put it on and watch how it winds up!

Hope everyone had a great Thanksgiving... To the leftovers!

Malcolm

ps My most favorite literary line in a book I ready 40 years ago:

Everything in this book may be wrong. (bonus Karma points if you know the book AND author).

Elliott, Ron on

Malcolm:

Thanks for updating us on your in-the-money covered call trade. I'm responding to your question about why someone hasn't snapped up the difference (I've highlighted those comments in yellow below). I'm not an expert on this stuff, but fortunately there are people reading this who can correct any mis-statements I make J.

I'm quite sure that a trader would not be able to make that zero-risk $54 on a 600-share trade - that would mean that the call option has a NEGATIVE time value (i.e., selling for less than its intrinsic value). The computers that look for arbitrage opportunities in the market won't let that situation develop. Since the stock closed Friday at $46.18, the $39.29 call option would have an intrinsic value of $6.89 and could almost certainly not be bought for less than that. Looking at option tables doesn't mean a whole lot when the market is closed, but currently my broker's web page is showing bid and ask prices of $6.80 and $7.30 (a pretty wide spread). No seller is going to sell the option at $6.80 at Monday's open, unless he/she: (a) makes a mistake; (b) is sure that the stock price is simultaneously moving down by AT LEAST a dime (probably a lot more than that, since there are still almost 3 weeks till expiration); or (c) has it as part of some hedge or multi-leg spread strategy that has an element that sort of counters/offsets the sale of this call.

Right or wrong, that's my attempt at an explanation.

Happy New Year,

--Ron

From: cool_club@bivio.com [mailto:cool_club@bivio.com] On Behalf Of Malcolm Myles
Sent: Saturday, December 29, 2012 6:44 PM
To: cool_club@bivio.com
Subject: Re: [cool_club] FAST Trade Concept

On 11/23/2012 5:02 PM, Malcolm Myles wrote:

Dudes & Dudettes,

Against cautionary advice... The Trade is on.

Logic: Fastenal announced a $0.50 special dividend payable Dec 21 (Dec 7 ex-dividend). In order to put the cash position of my portfolio to work and to capture the short term return, I took the following position - a Buy-Write.

B 600 FAST @ $41.05 and STO 6x FAST 01/19/13 (59 days) 39.79 CC @ $2.65
    (strike price will be reduced (as well as stock) by $0.50 to 39.29 on Dec 21, used for calculations)

Here's my analysis:
Option expires in January with stock just below strike price, ie worthless: (+premium+dividend+stock) I keep the premium, I collect the dividend on the 600 shares and I have 600 shares of a company I'm very happy to own (basis is still way below market due to other shares already holding). STO more CC.
Option expires in January and the stock is 20-30% below the strike price: (+premium+dividend+stock) ditto, FAST is going to be awesome in five years and I have the premium and dividend. Maybe don't sell CC for a while.
Option price drops to below the strike price after ex-div date: (+premium+dividend-premium+stock) I keep the premium, I collect the dividend, I BTC the option trade and write another out father for my purchase price of 41 - IF the COOL Tool shows it as profitable.
Stock goes like a rocket to 55 and I'm called away on my shares: (+premium-net cost of stock) I keep the premium, I collect my strike price for stock (back into cash) and I watch my remaining shares get very pricey. Dividend may be icing or just a wish.
Option get exercised before expiration because someone wants the dividend more than me: (+premium-net cost of stock) I keep the premium, the stock is called away. I've calculated that my net gain will be $503.40 (I consider this to be the worst case scenario)... no dividend for me.
Underlying: Cash... $24,638.95 (portfolio cash position)
Net premium for CC is $1,577 (out long, deeper in the money, going for the premium)
Dividend will be $300 (cherry on top)
Net cost of stock (purchase-strike price) -$1073.90 (includes commissions)
I've looked at it longer and from different angles than any trade I've ever done. I just don't see a negative risk (okay, Climate Wierding intentionally ignored.) - I either have my cash or I have my stock.

I don't believe the company will go down 20% without the rest of the market falling off the fiscal cliff and if it does, I'll have spent a good portion of my cash to get into a position not at the bottom (like I haven't done that before!). I'll use the remaining to go-a-hunting.

I don't think it will go to 55 due to a Santa Rally (Dude, if you buy your wife a sack of screws... you're nuts! But Duddettes, you buy your nut a sack of screws, you'll have started something!)

I do think I stand to make $503 at a minimum (premium-net cost of stock) with the potential of $1,877 (at an APR of 47%) in 57 more days and sleep well for 56 nights!

I know its off season, but I can't shake the feeling I just hit a stand up triple into the alley by the arches at AT&T Park!

What the heck, I did hit a triple! And it was fun as hell to see the opportunity, work through the problem with my COOL Club education and support, put it on and watch how it winds up!

Hope everyone had a great Thanksgiving... To the leftovers!

Malcolm

ps My most favorite literary line in a book I ready 40 years ago:

    Everything in this book may be wrong. (bonus Karma points if you know the book AND author).

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