11-12-2013, 08:30 AM
As suggested, here is a current strategy of using LEAPS with dividend aristocrat type stocks.
1. I search http://ycharts.com/companies/KO/dividend_yield for stocks on my list that are at the upper or lower end of their 5 year yield.
2. Off that list I go to the option chain and see what open interest looks like 6 months out (May 14 Options).
3. I find an option with a 70+ Delta, it captures 70% of the stocks' price move, and buy that option.
4. Wait for stock to rotate back toward the other end of the yield range and sell the option.
Risk is what is paid for the option which if stock doesn't move in 6 months, it will expire worthless. 6 months appears to be sufficient for these types of stocks to rotate away from the yield side that you bought it at.
1. I search http://ycharts.com/companies/KO/dividend_yield for stocks on my list that are at the upper or lower end of their 5 year yield.
2. Off that list I go to the option chain and see what open interest looks like 6 months out (May 14 Options).
3. I find an option with a 70+ Delta, it captures 70% of the stocks' price move, and buy that option.
4. Wait for stock to rotate back toward the other end of the yield range and sell the option.
Risk is what is paid for the option which if stock doesn't move in 6 months, it will expire worthless. 6 months appears to be sufficient for these types of stocks to rotate away from the yield side that you bought it at.