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American Capital Agency Corp. Message Board

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  • reits_r_us reits_r_us Dec 2, 2012 12:45 PM Flag

    Any Chance of A Special Divi in Dec. to Beat The Cliff, or It Doesn't Matter?

    Speaking about special dividends, how about Costco's seven dollar special dividend with a record date of the 10th of Dec? I used to be up on the EX and payable date with special dividends. Isn't it true that they occur at later dates (EX) than the typical two business days before the record?

    Because of this(If I remember correctly) the premiums on the Puts are not up by seven dollars currently and further the actual strike price itself(Puts) will get lowered by seven dollars on the EX date. That is why unsuspecting option traders will say things like, "Holy Cow!, I can buy some ATM Puts and score by seven dollars on the EX date" , but sadly wake up on he morning of the EX to find that Santa indeed brought no seven dollar gift because your Long 110 strike Dec Put is now only a 103 Long Dec Put. Did I get that right?

    Oddly the co-owner who was one of the crowd supporting Obama and making a speech about sharing the wealth with the middle class, prior to the election, will cash in to the tune of 11 million dollars before the end of the year so he won't suffer the consequences on Jan 1, of not having the Bush dividend break(15%).

    He will manipulate the financials, together with the other board members who , in total, will reap another 11 million profit, by borrowing the monies for Costco to underwrite the dividend payout for shareholders. Rather unprecedented, as this will likely lower the credit rating on Costco's debt from AA-, to A+, whereas, recently, their credit rating was being looked at for a possible raise.

    I believe he (Sinegal ?) will be taxed at 15% rather than about 45% on the 11million windfall and save about 3 million + dollars, by manipulating his company (through borrowing the money to pay shareholders...himself included) and actually hurting the company's balance sheet.

    I think he should donate this 8+ million net profit to the Treasury as a goodwill gesture that he really believes in sharing the wealth as his words stated, when promoting his President. If not, then at least the 3 million dollar difference obtained through the Bush dividend tax savings.

    What do you think?

    DocReits

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    • "I used to be up on the EX and payable date with special dividends. Isn't it true that they occur at later dates (EX) than the typical two business days before the record?"

      Only when the distribution equals or exceeds 25% of the the company's share price. Costco's does not, so regular dividend dates apply.

      • 2 Replies to cwn600
      • Hey Cwn600,

        They treated Costco's 7.00 divi as a "special" dividend and subsequently changed the actual Put strikes by 7.00, so the 105's are now 98's. So, I was correct in that the 25% rule no longer applies on these dividends apparently.

        DocReits

        Sentiment: Strong Buy

      • Thanks cwn600,

        I was thinking about that 25% rule today but remember the OCC changed that rule (I thought) about a year or two ago. I will have to look it up.

        If you are correct and the EX does occur this Thursday(Dec 6th) and the PPS is basically @ 104 and the Dec105Puts are trading @ 2.45(Using tonight-Dec 2nd- as a proxy for this coming Wednesday's close), the opening price tomorrow(using the proxy) would be 97.00(104-7), and you sell your Put for 8.00 minus 2.45 cost and you just made over 5.50/share overnight.

        You see why I think the 25% rule has expired. There are many people, like myself, who would take advantage of that in a heartbeat so I will do some digging. I know that's too easy so I think the rules changed. Thanks for making me look it up. To be continued...;-)

        DocReits

 
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