Assume you have a portfolio including VT, Vanguard Total World Stock ETF, which has a current price of $110.40. The fund pays dividends, last year's June dividend was $.65 and you plan to reinvest this year's dividend or some fraction of it. This gives you an expected cash flow and between the VT dividend, your other dividends, and other cash flows, you will be investing at least $10,810 in VT on June 21st. There are also options on VT expiring on June 21st, with a put at the $110 strike sold at $1.92, as of this writing. So you would have received $192 - commissions to write a put expiring on your investment date. Should you write that put now?
If VT ends above 110, you end up with the premium. If it ends below, you buy at a higher price. But if you already had the $11,000 to invest now, you would, since you don't time the market. The optionality not worth a lot, as a non-market timer, so shouldn't you sell it and get paid?
This example is contrived, but it is less contrived than initially appears. Since qualified dividends require you to hold a fund for at least 61 days before the dividend is paid, investors could be avoiding taxable investments in that period or accruing a cash balance waiting for the ex div date.
If VT ends above 110, you end up with the premium. If it ends below, you buy at a higher price. But if you already had the $11,000 to invest now, you would, since you don't time the market. The optionality not worth a lot, as a non-market timer, so shouldn't you sell it and get paid?
This example is contrived, but it is less contrived than initially appears. Since qualified dividends require you to hold a fund for at least 61 days before the dividend is paid, investors could be avoiding taxable investments in that period or accruing a cash balance waiting for the ex div date.
Statistics: Posted by uncompressed — Thu May 09, 2024 8:26 pm — Replies 0 — Views 22