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The main difference between those strategies is that in dividend capture, the reason for the trade is the upcoming dividend distribution. While in selling calls on stocks you own, the main reason is to augment the trade's cash flow and return.
Because of it - in dividend capture trade, we want to be assigned during expiration or Ex-date and use the cash to find a new trade. If we are not assigned, we will continue to sell calls and decrease the cost basis (read more in our blog)
In Selling calls on stocks we own, we sell OTM options to lower the assigned risk. If we are in the money when we get close to expiration, we need to: either roll the option, or be assigned and look for another opportunity to enter the trade.
Using Dividends when trading Covered Calls
One of the benefits of holding established companies for a long time is that you can enjoy a dividend stream from them. Research shows (blog) that dividend-paying stocks outperform the market. In addition, that stream usually adds a few percentages of cash flow for the investor every year.
Options traders can augment that cashflow by selling out-the-money calls and getting some extra premium from stocks that distribute dividends.
Options traders can augment that cashflow by selling out-the-money calls and getting some extra premium from stocks that distribute dividends.
Using SamruAI, you can do this easily - either dividend capture or sell calls on dividend-paying stocks you already own:
Build the scanner:
Dividend Capture:
- Pick Covered Call strategy
- Add dividend date filter and set it to before expiration.
- Set stock score fundamental to above 5 to see companies that are better than average.
- Set bid-ask spread to any.
- Set moneyness to below stock price.
- Sort by any field to save time analyzing trades- for example annualize return.
Sell covered calls on stocks you already own
- Pick the Naked Call strategy (you can also pick covered calls)
- Add dividend date (set to before expiration)
- Add include symbols filter (copy-paste the list of stocks you own up to ~100)
- Add dividend yield - set on any.
- Set bid-ask spreads to any; Set moneyness to above stock price (you can select a percent).
- Add ATR vs. Strike - set it to above 1 ATR (Sets the distance of the stock according to volatility - read more in our blog )
Trade management
[This is a suggestion of how to look at those trades. Feel free to ask us for help if you want help tailoring it for you]
The main difference between those strategies is that in dividend capture, the reason for the trade is the upcoming dividend distribution. While in selling calls on stocks you own, the main reason is to augment the trade's cash flow and return.
Because of it - in dividend capture trade, we want to be assigned during expiration or Ex-date and use the cash to find a new trade. If we are not assigned, we will continue to sell calls and decrease the cost basis (read more in our blog)
In Selling calls on stocks we own, we sell OTM options to lower the assigned risk. If we are in the money when we get close to expiration, we need to: either roll the option, or be assigned and look for another opportunity to enter the trade.
Predefined scans
To help you get started, we have two covered calls scans in the predefined that integrate dividend:
- Continuous covered calls on dividend-paying stocks: See it in Option Samruai
- Dividend Capture Covered calls: See it in Option Samruai
Read More
The edge of dividends - blog
Using ATR when trading options - blog
Reducing Cost basis using options - blog
Dividend data - KB
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