In my previous article Implementing Dividend Arbitrage: Verizon Wireless I discussed a strategy known as dividend arbitrage. This strategy consists of selling options on high yield stocks to both reduce risk and increase yield.

Dividend arbitrage investors do not concern themselves with making gains in appreciation of stock price, but rather gains are achieved by collecting regular dividend payments.

Problems were inherent in implementing dividend arbitrage on Verizon Wireless NYSE: VZas Verizon is a low-beta stock, which means that the premium on the options that were to be sold was minimal which increased the risk that the option would be exercised before the ex-dividend date. Additionally, the open interests for the deep in the money options was quite minimal, making the trade hard to execute and illiquid.

Conceptually, dividend arbitrage can work on any stock with an above average yield, but in practice the ideal stock for dividend arbitrage is one that is large cap greater open interest for optionsa high beta grater options premiumsfundamentally sound, and consistent with dividend payments. Using these criterion I have been able to identify 3 stocks that would be ideal for dividend arbitrage and outline exactly how to trade them.

A type of order that tells your brokers to buy a stock and zoo tycoon 2 making money sell the desired option for a net dividend arbitrage trading strategy equaling the dividend arbitrage trading strategy of the stock minus the price ao forex the option sold.

Dividend Arbitrage Explained | Online Option Trading Guide

Seadrill Limited is a Bermuda-based company active in the oil and gas industry. The company operates a fleet of 60 units, comprising drillships, jack-up rigs, semi-submersible rigs and tender rigs for operations in shallow to ultra-deepwater areas. Execute a covered stock of SDRL, buying the stock at market price Jan 13 Strike Seadrill is an extremely high-yielding stock, as it is yielding 8.

BLARE

By selling the strike Williams Partners a diversified master limited partnership formed by The Williams Companies, Inc. Williams is an integrated natural gas company focused on exploration and production, midstream gathering and processing, and interstate natural gas transportation primarily in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania.

Execute a covered stock of WPZ, buying the stock at market price Strike 40 calls have a current open interest of Williams Partners is currently yielding 4.

Dividend Arbitrage

This trade allows you to lock in a yield of 7. Vale SA is a Brazil-based metals and mining company. The company's product portfolio includes nickel, iron ore and iron ore pellets, manganese ore, ferroalloys, aluminum, fertilizers, copper and coal among others.

Strike 18 calls have a current open interest of Vale is currently yielding 7.

This trade allows you to lock in a yield of 9. REITs Dividend Ideas Dividend Strategy Dividend News Dividend Quick Picks Editor's Picks.

Seadrill, Williams, Vale Jan. Want to share your opinion on this article?

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