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American Capital Agency Corp. Message Board

  • engie095 engie095 Apr 19, 2012 10:01 AM Flag

    For Doc - selling puts strategy

    Ok, 4th time trying to post this to Yahoo. I'll split it in 2 messages and see if that works.

    --- part 1 ---

    Hi Doc,

    I'm finally working my way through some of your strategies, and I wrote up this reply before seeing a similar question posted below, but I still don't understand something, so I'll post my original reply, then a followup. Hopefully it goes through this time, since the Yahoo monsters ate my previous attempt.

    My question is, in essence, how do you collect the dividend _and_
    short puts concurrently in order to get the 40.46% return?

    I’ll explain.

    Let’s say I have $10,000 to invest. I can invest that $10,000 in the
    short-put strategy, selling cash-secured puts (I’ll comment on margin
    at the end). That $10,000 is now spoken for, so I can’t purchase
    stock to obtain the dividends if I have it tied up securing any puts.
    The only way to collect the March dividend, for example, would be to
    buy the March 30 puts back before Ex-Div, freeing up the cash, then
    use that cash to purchase the stock. It wouldn’t work to let the
    March options expire (on March 19), because Ex-Div was March 21, a

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    • "It's the bouquet , Engie! You must savor it. Swirl it around and let it permeate every fiber of your being."

      Sounds like you've been doing quite a bit of the swirling this evening...

      (Me too btw).

    • Engie,

      You need to read and re-read and then re-re-read my missives, then sleep with them under your pillow to truly absorb the full bouquet. Someday they will be placed in books like Ben Hogan's series of articles in Life or wherever they were put, describing the perfect swing.

      Here is what you read too quickly from my post:

      "You know my MO, of late, has been the Short Put. Before you ignore me and go back to re-runs of Leave-it-to-Beaver, hear how you can more than double your current dividend while holding your current shares. Good, the TV is off...;-)"

      Notice this phrase, " ...while holding your current shares".

      It's the bouquet , Engie! You must savor it. Swirl it around and let it permeate every fiber of your being. There is hope in those embers. There is the sweet light that revives all people. The hope for the unobtainable. That which is just beyond one's reach. The redemption of that last bad trade. The hope of the returned joy of that sweet trade of victory.

      It's better than almost anything. How about that sweet awakening when you were 15 years old, without aches or pains, having had sweet sleep and waking refreshed , clear of head and sinus. That state between wakefulness and dream where all is fresh and new, and worry is determined by the confines of a day without hours enough to spend your coins of dissipation.

      Inhale deeply Engie, I described two different scenarios. I think they have been described again a few times now. The rest is up to you. Dissect my missives. Walk around the block reading them aloud so all may hear the glory of your discerning remarks. You might try a high then low timbre to your sonnet. The onlookers might think odd, those secrets only the knowing know. In the end they perchance may think you daft, but you will be the last to laugh, as you carry with neighbor help, the winnings of your learned art.

      Then we, with they, will all rejoice at Engie's wealth, that shan't depart.

      Good luck all just have to work at it....:-)


    • Sorry, I should have included a pointer to the original thread. It's this one:

      Well here is a plan for AGNC

    • In "trade #1", you hold long shares, and of course you collect dividends on these shares.

    • I am talking about the "second trade" in doc's post, which includes only short puts. Don't know what the original post was (link?)

    • Hey Engie,

      Sorry about the Yahoo censors...they eat my posts all the time...;-)

      I had two trains of thought going(two different trades) on the Short Puts. Here they are:

      The first was the 40% trade. That was aimed at those holding Long shares and wanting perhaps to buy more shares. So they were holding their shares and collecting the dividend AND selling Short Puts to increase revenue and perhaps be assigned the shares.

      BTW, if you are assigned the shares, and have margin, but not cash to cover an assignment, just sell the shares , once assigned. You don't have to buy them with cash, if you have the margin.

      The second trade was to sell Short the 13 and 14Jan30Put Leaps. They have the dividend baked into the premium, so you end up collecting all the dividends if you hold those to their respective OPEX's, with the PPS @ or above 30 @ that time.

      Hope this clears up the confusion....;-)



    • Test (can't post 2nd part)

      • 3 Replies to engie095
      • Now assume Ex-Div was a few days later, so that the cash is freed up
        once the cash-secured puts expire. Buying the stock just a few days
        before Ex-Div would when the stock price will be at the highest. I’d
        collect the dividend, but the stock price would then be lower by
        (approximately) the dividend amount. If I were to wait until the
        stock price rises again to the same level, it’d be another 3 months,
        preventing using the funds for the cash-secured puts strategy.

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