Instead of buying shares and holding them for multiple years, I am thinking to buy the shares around 30 minutes before market close on the trading day before ex-dividend date. I will also sell ATM calls expiring soon (with expiration date this Friday or 3rd Friday of the month) against the shares before the market close.
The ATM calls sold will have time value around half of dividend yield. This will ensure there is a non-zero likelihood that the shares will be called away on the same day. For example, if a stock gives 4% annual dividend (1% dividend per quarter), we sell ATM calls with remaining time value equivalent to ~50% dividend received.
If everything goes well, we should net ~2% from the stock per year. It should not be too hard to repeat it 5 times to reach 10% annual return. Of course, we need to pick the stocks carefully (e.g., no stocks with 20%+ annual dividend that are about to bankrupt), and be ready to start selling more calls against the shares until break even if the shares are not called away.
This strategy may not be appealing in 2020 and 2021, but as the dividend stocks will be more favorable during high inflation period from 2022 to 2024, it looks like a very good risk-adjusted strategy. What do you all think about this?
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