As usual, whenever a stock goes ex-dividend and its shares closed the previous day above the strike price, I send out an email or text query trying to find out the experience of those that held shares.
Although I usually have a good idea of what those responses will be, getting the information makes reporting performance data more representative.
Normally, when it appears that a dividend paying stock is likely to be assigned early, I accept that fact and look forward to getting my money back and then redeploying it somewhere else. I especially like those early assignments to come either ealy in the week or at a point that I can reinvest in something that has an option contract a little more than a week off. In that way I can get more premium.
On some occasions, and they don’t happen very often, it may make sense to try and stave off early assignment by rolling over contracts to a forward date.
Yesterday was one of those cases.
For those that had the Bristol Myers Squibb April 4, 2014 $50.50 contract, if assigned early and not receiving premium, you would have achieved approximately a 1.6% ROI for 7 days of holding.
However, in what may have been an anomaly of premium pricing or more likely related to the low volatility that makes in the money contracts relatively inexpensive, there was a 0.4% boost to ROI to be gained by rolling the shares over to the next week. Add to the the greater likelihood of retaining the dividend and that ROI boost went up to 1.1%.
It was one of those rare win-win situations.
In this case, the stock was on the losing end of concerns regarding the bio-tech sector the previous week and had gone down quite a bit.
In the event of not rolloing over shares, the ROI would be 1.6%.
If rolling over and still assigned early, the ROI would have been 2.0%, for the same 7 days of holding. However, if not assigned early the ROI would be 2.7% for 10 days.
Better yet, with a strike price of $50.50, there was about a 3% cushion between the share price, which closed at $51.86 and the strike level , meaning that there would be a reasonably good chance of assignment and getting your money back to re-invest elsewhere or to add to a cash reserve.
On the radar scope for possibly the same approach is The Gap (GPS) which goes ex-dividend on Monday. For those that bought shares, if assigned early, you will have received a full two weeks of premium, but you will get your cash back Monday morning for re-investment after pocketing a 1.5% ROI for 5 days of holding. However, as its shares are trading above the strike price we will look at the approach.
Or maybe just be satisfied with the 1.5%. Either way works for me.