Risk Free Dividend Play

VZ pays $1.95 dividends, that’s over 5% with today’s price of 37.75.  I was thinking about putting cash into something that pays more the themeager 1% interest in the bank.

I bought 1000 shares of VZ, and to make it risk free, I bought Jan 12 37 puts for 3.10, and sold Jan 12 37 calls for 2.71 to offset the cost.   That’s $.39/shr out of pocket premium.  At expiration I have to sell the shares at 37, so that’s additional $.75/shr capital loss.  So subtract $.39 and $.75 from the $1.95 dividend yields $.81 net dividend, excluding commissions.    That’s about 2.1% yield.

Nice theoretical exercise, but in reality I made some careless error!

  1. I just missed the April 6 ex-dividend date by a week!!
  2. The option expiration is Jan 12, that’s less than a full year!

So, I’d probably get only 2 dividend payments may be 3, meaning, the yield will be about 1% to 1.5%.  A bit of a waste of time, but a lesson learned.

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