Thoughts on Possible Divvy Reduction, Put Selling, etc.
Doc, et al, since you've mentioned a couple of times that you think the divvy may be reduced, I've been mulling this over, visavis your put-selling strategies. In short, wouldn't a divvy reduction be ideal for picking up a windfalll on short puts, as the divvies are already priced in. For example, sell the Jan. '14 32 puts, which apparently, more or less, have 4 divvies priced in. If divvy is reduced from 1.25 to 1.10, or even a buck, then the MMs would adjust put prices accordingly, i.e. down. Seems like there's some "free money" out there, or at least a possible hedge against a divvy reduction. Your thoughts?
I have stated in a number of threads that the MMs have already factored in a reduction to a 1.00 dividend going forward. That is why you will note that all of the contract month's strikes(ATM and ITM) are priced @ 1.00/dividend. Eg 14Jan32Put today @ 4.25/5.15 or a probable 4.50 short. That equals (1.00 x 4 + .37 on today's price + a little time). Check it out...the MMs are not dumb..they know the probabilities.
I just covered my ShortJun27Puts today for about a 40% profit. I will wait on Earnings. The March and Junes will be the sweet ride if we go down some as the MMs have factored in the EX dates being prior to OPEX, which I don't believe is correct(at least for March). As a result the dividends are in the premiums and they should not be, if I am correct. That has nothing to do with a divi reduction though.
Sorry, but somewhere over the last few weeks been so wrapped up in my work here that I haven't been able to follow the MBs as much as before. Should'e figured you'd been watching those put premiums all along. The wide spreads on the put you mentioned (14Jan32) at 4.25/5.15 seem to imply the MMs playing it a little loose, in case the divvy does come in over a buck.
I'm with you on the ex-dates for March and June. I think OpEx will be before both of them.
By the way, for another stock with what i think are skewed option prices, take a look at TWO. :-)
I also would like to get thoughts on this however my strategy has been a little different, I hold a position for div income and hedge against a drop with puts.. a div cut which has been conjectured before would be a catalyst for such a drop
it's my understanding that a div cut, if any, would be announced during earnings this thursday after close