Working the options as reporting slugs stocks

Australian Financial Review 16 Feb 2010, Derivatives
By John Wasiliev

Traders were also unimpressed by the major banks after being disappointed that Commonwealth Bank of Australia’s result wasn’t better.

That said, exchange-traded options traders who bought the shares last week for the dividend and wrote call options against them should have been pleased with yesterday’s outcome. The shares went ex the $1.20 dividend and were holding their price while the $54 March call they sold for $1.10 in premium was trading down to 77c.

Derivatives Adviser Wai-Yee Chen of RBS Morgans said traders were looking yesterday at QBE Insurance, which is set to pay a 65c dividend next week, for possible dividend-related strategies.

Options strategies pay with bonus cash to boot

Australian Financial Review 9 Feb 2010, Derivatives
By John Wasiliev

Those involved in exchange traded options were pursuing their own dividend-related strategies, said RBS Morgans Asian desk derivatives head Wai-Yee Chen. Yesterday, they were buying CBA shares at just under $52.90 for the expected $1.13 dividend and selling out-of-the-money call options for the premium income. This is the well known buy-write options strategy. CBA shares are expected to trade ex-dividend early next week.

Ms Chen said $54 May expiry call options were paying premiums of about $1.10 yesterday morning. For anyone buying the shares at $52.90, this effectively reduced their cost price to about $51.80.

With this strategy, traders are locked in to sell their shares at $54, which would give them an extra $1.20 if the options happen to be exercised by buyers.

Ms Chen said the strategy would give traders the opportunity to earn the $1.13 dividend, the $1.10 options premium and the potential profit from the options exercise minus any transaction costs should the shares move above $54.

If the options are not exercised because the share price falls, traders have some downside protection from the options premium and dividend income they will earn. Ms Chen said there were some quite interesting dividend-paying shares on the horizon this reporting season.