Result of my AT&T Paper Trade

Back on 1/6/22 I entered a trade with AT&T (T). This was a paper trade! We will use this trade for learning purposes only.

This was a trade to capture the dividend on a high dividend stock along with selling a Call option against my shares. I call this strategy “Double Dipping.” With Double Dipping I collect a dividend payment and I collect a premium for my Short Call.

Before we get into the results of my trade let’s review important terms you need to know to make a trade like this.

Dividend – The stock’s dividend is listed as a quarterly payment. AT&T’s quarterly dividend is 52¢. This means you will receive 52¢ per share owned. With my trade I bought 1000 shares of AT&T. My quarterly dividend is $520. If I owned the stock for a year I would receive $2.08 per share (52¢ X 4). $2.08 per share annually would be $2080.

Ex-Date – The Ex-Date is the date you must own the stock by in order to collect the next dividend. In our case the Ex-Date was 1/7/22. In order to collect the next dividend you must own the stock before this date. I bought 1000 shares of AT&T on 1/6/22. This qualifies me to collect the next dividend.

Pay-Date – This is the date the dividend will be put into your account.

Also, please review my 2 previous posts on my AT&T trade. 1 explains my trade and the other is when I received my dividend: Explanation of my AT&T Trade and Update on my AT&T Paper Trade.

Result of my Trade and a next move

I bought 1000 shares of AT&T at $26.20 on 1/6/22 to capture the dividend. The Ex-Date is 1/7/22. The Pay-Date is 2/1/22.

I also sold 10 contracts of the T 2/11/22 $27 Calls for a premium of 50¢ for $500. Below is the trade I entered.

1/6/22 Buy 1000 Shares T @ 26.20

1/6/22 – Sell to Open 10 T 2/11/22 $27.00 C @ 50¢ (+$500)

2/1/22 rolled around and I received the 52¢ dividend. On my 1000 shares this is $520. You can take your dividend in cash or in shares. I like taking the dividend in shares so next time I can collect a dividend on those also. On the Pay-date (Feb 1st) the stock was at $24.42. The $520 dividend bought me 21 additional shares. I now own 1021 shares.

Next, 2/11/22 rolled around and my Call Option expired. The stock was below my $27 Strike Price so I was not assigned, but I keep my $500 premium.

At this point this trade is over. I made $520 in dividend and the $500 premium for a total of $1020.

What to do next?

I like collecting dividends, so let’s say I hold the stock for the next dividend. Now I look up the next Ex-Date and the next Pay-Date. The next Ex-Date is 4/8/22 and the next Pay-Date is 5/2/22. I just hold the stock until the next Pay-Date to collect the next 52¢ premium.

Since I already own the stock, why is the Ex-Date important to me?

The Ex-Date is important because of my Double Dipping strategy. In my Double Dipping strategy I want to sell another Call Option to receive a premium. My Expiration Date has to be after the Pay-Date of 5/2/22 to collect the dividend. The option I would sell is the next Expiration Date after 5/2/22. I want to make sure I hold the stock until 5/2/22 in order to capture the dividend. The next Expiration Date listed right now is 6/17/22.

The big question is when do I sell the Call. If I sell the 6/17/22 $27 Call now the premium is high because there is a lot of Time Value. However, I cannot sell the Call yet! Remember, a Call Option can be exercised on or before the Expiration Date. If I sell the Call now and the stock shoots up above my Strike Price, the buyer of your option can take your stock before the Ex-Date so he captures the dividend. If you are in this for the dividend you cannot leave yourself open to possibly losing your stock and the dividend. You must sell your Call after the Ex-Date. An Option buyer can still take your stock but he will not take it for the dividend. You would still receive the dividend because you owned the stock before the Ex-Date. Someone gets the dividend, and it would be the one who owned the stock before the Ex-Date.

So, with this position, I would hold the stock and sell the Call Option on or after 4/8/22, the Ex-Date. Again I would capture the dividend and get a premium.

The bottom line, if you want to do my Double Dipping strategy make sure you understand the rules of the Ex-Date and the Pay-Date. If you’re not interested in Double Dipping and only want to collect dividends you would just hold the stock for the next dividend.

Dividend strategies are a great way to make extra money while holding very good stocks. If you want to look up great dividend stocks Google “The Dividend Aristocrats.” To be a dividend aristocrat a stock must have paid a dividend, and increased that dividend, for the last 25 years. These are great stocks!

I hope my little AT&T paper trade helped you understand how dividends work, and what you must do if you want to use my strategy of Double Dipping.

Send me any questions. Or send me an email on what you think about dividend capturing.

 

Successful trading,

Steve

The Options Coach