tag:blogger.com,1999:blog-6878884597386050425.post1303465556413821494..comments2024-01-20T19:06:24.811-06:00Comments on My Dividend Pipeline: Options trade: GMMy Dividend Pipelinehttp://www.blogger.com/profile/00105884431032493602noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-6878884597386050425.post-40895396191228480382015-04-29T15:05:08.951-05:002015-04-29T15:05:08.951-05:00Thanks MDP. These answers really helps and brings ...Thanks MDP. These answers really helps and brings me one step closer (in a very long journey) to understanding how options work. I am sure this is just the tip of the iceberg and there is lot more to it. Will continue to read about this as I come across and maybe hopefully I start out with some simple option trades like this one. Dividend Growth Journeyhttp://dividendgrowthjourney.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-6878884597386050425.post-45406277494382308812015-04-28T16:48:19.267-05:002015-04-28T16:48:19.267-05:00DGJ,
Before I answer the questions please refer t...DGJ,<br /><br />Before I answer the questions please refer to the DISCLAIMER above. :-)<br /><br />1. They are covered calls because I own the shares already. This makes it easy to deliver the shares in the event GM surged to say $100 overnight. If I didn't own them, then I would have to produce the shares (ie I would have to pay $100 in order to deliver them at the $40 exercise price). That would not be good.<br /><br />2. Since I received $.98 x 100 shares as a premium, the party who paid the $98 plus commission would probably not exercise their option to buy the shares at $40 since they actually would have to pay ($40 + $.98) x100 plus commissions to receive the shares. As far as I know the option doesn't necessary have to be exercised @ $41 (approximate breakeven) point. Common sense tells me that if GM was trading at $43 then it would make sense to pay the ($40 + $.98) x 100 because they immediately could resell the shares at a $200 profit. However it is an option to buy. In theory they could not exercise the option hoping the price continues to rise and then buy the shares at a later date prior to the option expiring. Remember the buyer of the option has only invested $98 plus commission. When he exercises his option to buy he has to pay the for the full share count $40X100 or $4,000 plus commission. A lot of option traders buy and sell the options without exercising them hoping to make their money on the spreads.<br /><br />3. If the price stays below $40 +$.98 option price then no one would be interested in paying me $40 a share so I would keep the shares and the option buyer would lose his ($.98 X 100) and nothing else. I would keep my 100 shares as well as the option premium of $98.00 less commissions of course.<br /><br />4. Since I own the shares I get to keep the dividends. So I could keep my shares, receive the dividends and make money with the option premium. Potentially this could almost double my income from the shares which is pretty cool.<br /><br />I still have a lot to learn about options, but this is one of the simplest and least risky options trade to do.<br /><br />I hope this helps.<br /><br />MDPMy Dividend Pipelinehttps://www.blogger.com/profile/00105884431032493602noreply@blogger.comtag:blogger.com,1999:blog-6878884597386050425.post-46094297117079961362015-04-28T15:59:07.241-05:002015-04-28T15:59:07.241-05:00I am trying to understand how this works.
1) Is ...I am trying to understand how this works. <br /><br />1) Is this a covered call because you already own the shares? <br />2) What happens if the price hits $40 before 1/15/2016? Does it matter when the price crosses $40? Will the option be automatically exercised when the price hits $40 or someone has to elect to exercise the option so that your shares are sold? <br />3) What happens if the price does not hit $40 before 1/15/2016? <br />4) Will you get dividends for this trade during this timeframe? If yes, is it because you already hold the shares? Dividend Growth Journeyhttp://dividendgrowthjourney.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-6878884597386050425.post-10061635077334048312015-04-28T08:26:40.554-05:002015-04-28T08:26:40.554-05:00Div Son,
Yes I am using Sharebuilder right now. T...Div Son,<br /><br />Yes I am using Sharebuilder right now. The fees actually aren't that bad. My charge for this transaction was $7.70 ($6.95 + .75 per option sold). I think because I was so conservative with my strike price (ie it is quite a bit higher than the current price) it looks like my cost is unusually high compared to my premium. <br /><br />My previous GE call was deep in the money and paid over $1150 to open and my transaction cost for the two calls sold was a little over $8.00. <br /><br />As far as Sharebuilder's option price updates, it leaves a lot to be desired. I might use a better platform in the future.<br /><br />MDPMy Dividend Pipelinehttps://www.blogger.com/profile/00105884431032493602noreply@blogger.comtag:blogger.com,1999:blog-6878884597386050425.post-49541722962247853292015-04-27T20:40:53.494-05:002015-04-27T20:40:53.494-05:00MDP, are you using sharebuilder for your options? ...MDP, are you using sharebuilder for your options? Have you thought about other brokerages with lower fees?Div4sonhttps://www.blogger.com/profile/03642716734352260007noreply@blogger.comtag:blogger.com,1999:blog-6878884597386050425.post-32480951081637124122015-04-27T20:23:00.927-05:002015-04-27T20:23:00.927-05:00GYFG,
I'm just trying to keep adding more coa...GYFG,<br /><br />I'm just trying to keep adding more coal to the furnace every week. I really like the spread on the GM call I sold. I need to start trying to figure out more ways to multiply my dividends outside of traditional purchases. I'm looking for new ways to expand my empire and I think options be an integral part of my future income streams.<br /><br />MDPMy Dividend Pipelinehttps://www.blogger.com/profile/00105884431032493602noreply@blogger.comtag:blogger.com,1999:blog-6878884597386050425.post-36296663149479934162015-04-27T16:33:41.643-05:002015-04-27T16:33:41.643-05:00Very nice!
You have plenty of room for price appr...Very nice!<br /><br />You have plenty of room for price appreciation and you get to artificially boost the dividend by almost 100% over the option expiration period (assuming 3 more dividends).<br /><br />CheersGen Y Finance Guyhttp://www.genyfinanceguy.comnoreply@blogger.com