Normal
Another way to do it is(very close but only approx values used)eg anz pay a dividend of $1 per share fully franked. (They cut it to this todayand i'm not 100% sure what it is). so say $1.30 before frankingsay ANZ is trading at $13.00A NOV09 $13.00 PUT OPTION is 2.62 ($2620.00)Borrow $13,000.00 and buy 1000 shares. Purchase the above PUT option with your own money.Scenarios.As of NOV09 (covers 2 bi - yearly dividend payments)1.ANZ trading at $13.00.PUT is worthless.With dividend money you received during the year purchase another put out till NOV10.Loss will be the interest on the 13,000.00 which at 9% for 8 months will be approx $900.00 which is a deductable expenseBy NOV 10 it will cost say another $1200.00 interestBreak even price will be ($13,000 +$900 +$1200)/1000shares = $15.10 at NOV 2010-----------2. ANZ at $16.00PUT worthlessshare value - loan value = $3000.00interst = $900.00profit = $2100.00----------------3.ANZ at $10.00Exercise put and repay $13,000.00 loan.With dividend money you purchase another put out till NOV10 .buy 1000 shares at $10.00............new loan balance $10,000.00interest $900.00Break even is ($10,000 + $900 +$1200)/100shares = $12.10 by NOV 2010Some stock dont pay good dividends so it works better for some than others.Some brokers let the option account "talk" with the margin account so you can borrow 100% of the share value and NEVER get margin called. The fianl advantage is in option 3 where you get to participate in the down side
Another way to do it is
(very close but only approx values used)
eg anz pay a dividend of $1 per share fully franked. (They cut it to this todayand i'm not 100% sure what it is). so say $1.30 before franking
say ANZ is trading at $13.00
A NOV09 $13.00 PUT OPTION is 2.62 ($2620.00)
Borrow $13,000.00 and buy 1000 shares. Purchase the above PUT option with your own money.
Scenarios.
As of NOV09 (covers 2 bi - yearly dividend payments)
1.
ANZ trading at $13.00.
PUT is worthless.
With dividend money you received during the year purchase another put out till NOV10.
Loss will be the interest on the 13,000.00 which at 9% for 8 months will be approx $900.00 which is a deductable expense
By NOV 10 it will cost say another $1200.00 interest
Break even price will be ($13,000 +$900 +$1200)/1000shares = $15.10 at NOV 2010
-----------
2. ANZ at $16.00
PUT worthless
share value - loan value = $3000.00
interst = $900.00
profit = $2100.00
----------------
3.ANZ at $10.00
Exercise put and repay $13,000.00 loan.
With dividend money you purchase another put out till NOV10 .
buy 1000 shares at $10.00............
new loan balance $10,000.00
interest $900.00
Break even is ($10,000 + $900 +$1200)/100shares = $12.10 by NOV 2010
Some stock dont pay good dividends so it works better for some than others.
Some brokers let the option account "talk" with the margin account so you can borrow 100% of the share value and NEVER get margin called. The fianl advantage is in option 3 where you get to participate in the down side
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