Abbott Labs Dividend Capture

Update: My options were not assigned. I talked to options specialists at both Schwab and Fidelity and neither one could offer any opinion other than the options owners were not on the ball. The open interest did not drop much either, so I don't think it was a case where I just didn't draw the short straw.

I closed out my position early on the 10th. The IV on the options was up significantly (to prevent the people short the options from profiting immediately from the dividend.) With Abbot Labs scheduled to report earnings in two days I wasn't in the mood to take chances, so when I was able to get out with an 0.12 overall profit (including dividend) I did. This was before the big run-up the following week when many people were forecasting a big drop. If I had stayed in the reward would have been substancial ( .4 from the dividend plus 0.14 ) but betting direction on individual stocks I barely know is not my game.

Original Post

I did a ABT buy-write this morning. Bought the stock at 45.42, sold to open July 44 calls at 1.56 for net debit of 43.86 (Debit order was 43.88 so it filled at.02 better than my order). Ex-dividend date is 13-July, with a dividend of $0.4 per share. Since the premium on the options (.16) is less than the dividend value today (Friday) and the ex-dividend date is Monday I expect the options to be assigned tonight. If so it will be a .36% return for one day's investment.

I put in a 43.85 debit order initially, which did not fill in the 20 minutes I left it open. It appeared that the market fluctuations justified a fill, but these orders are handled manually and oftentimes don't catch the best case combinations. I debated doing sequential market orders instead of the debit order (with the options having to go last to avoid a naked call situation), but getting the option order executed at a good price looked tricky. I was not sure at all if I could get execution splitting the bid-asked prices. The spread was 0.1 most of the time, so this was 30% of the profit potential at risk if the order would only go through at full asked price. The options at that strike price were pretty active, with a cummulative volume of around 400 when my order when through.

The risk profile of this investement is pretty low. If the ABT - ABTGR call combination stays above 43.6 then the options will probably be called, closing the position tonight. This .3 drop in net credit would require a large drop in ABT, because the delta on the option is -.83 currently (of course the delta shifts as the stock price changes relative to the strike price.) If the option is not called then the .4 dividend per share will lower the break-even point of the position to a credit of 43.46, an almost 2 point drop in a stock that has not been below 43.46 since May 22nd.