Make Your Own Dividend with Bank of America

by Michael Shulman | April 25, 2012 8:20 am

[1]The Federal Reserve has refused to give Bank of America (NYSE:BAC[2]) permission to raise its dividend[3]. No matter – you can create your own weekly — yes, weekly — dividend if you like BAC as much as I do.

Why Bank of America? For purposes of disclosure, I am a loyal customer and have been for many years, from checking and bill paying to a home equity line of credit. They are an excellent retail operation. The company is turning itself around and is selling for less than half of book value. Technically, money has flowed in several times when the stock hits $8 and these kinds of money flows are critical when you are looking at weekly options positions.

Here are two ways to create that weekly dividend.

Buy/Write: Buy the stock around $8.20 and sell the BAC April week-4, 8-strike call for around 28 cents (a total premium of $28 per contract). If you are called out, you net around eight cents per share. That’s a 1% return in one week, which translates to a 50% dividend per annum.

If you do not get called out, that means the stock has dropped and you use the 28 cents you collected to average down the position. And do it again the following week.

Sell Weekly Puts: The other way to create your own BAC dividend is to sell a put. You would get around seven cents ($7 per contract) if you sold the BAC April week-4, 8-strike put. That is an 0.88% weekly return, a 44% return per annum.

These trades work best when a) you believe in the underlying company as I do; b) the trade has only one transaction cost (the sale of the option); c) you sell enough contracts to make the trade efficient, and; d) you sell weeklies frequently, preferably every week.

I do. You should too. 

Michael Shulman is editor of Options Income Blue Print[4]. Learn more about trading weekly options in this free short video[5]. For purposes of disclosure, Michael own Bank of America shares.


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