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American Capital Agency Corp. Message Board

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  • engie095 engie095 Apr 19, 2012 10:54 PM Flag

    For Doc - selling puts strategy

    Let's see if Yahoo allows this one. Here's the final part of what I was trying to post above:


    -----

    Below rkctech asked a similar question about collecting the dividends,
    and your response was:

    >> Do not collect dividends in the normal sense with options. Do not
    collect at all with Calls. The dividend is included in the premium of ATM
    and ITM Short Puts. <<

    I understand this, but in your strategy description, none of the puts you
    sold were more than $1.40. So, none of them included the dividend. If
    those puts didn't include the dividend, and you weren't collecting the
    dividend by owning the shares, how do you get the dividend? That's
    what I don't understand.

    Thanks!
    -----

    As far as I can tell, the dividend wasn't collected either directly or through the put premiums...at least in Doc's example.

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    • engie, you understand things correctly. Doc's "40%" scheme isn't really--it's utilizing additional purchasing power (account equity) to cover the puts and presumably supplement the normal return.

    • You quoted: "The dividend is included in the premium of ATM and ITM Short Puts."

      That's the point, as my comment also said.

      No, you do not "collect" dividends at the timne dividends are paid. You get an amount approximately equal to the dividend at the time you sell the put (which is earlier!)

 
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