This trade was actually executed on Wednesday 08/03/16. I didn’t get a chance to write about it until today.
This is an existing position, I’m just trying to move ownership of shares into a tax advantaged account. The dividends are unqualified, so I pay full income tax on them if I hold shares in my taxable brokerage.
VER will go ex-div on 9/28, well after this position has expired. The company has paid a stable $0.1375/share dividend since October of last year. They probably have a ways to go before they get their poop in a group to the point that they can raise it…but that time will come soon enough. They are still in the process of deleveraging. This trade will expire well before the ex-dividend date.
SPL (Strike Price Logic)
So there aren’t as many options available as there were back in May when I tried this last time. Weird right? My cost basis in the taxable account is $9.40, so $10.50 seems like it kind of sucks, but there wasn’t really much available, so I decided to go close to the money to increase the premium. This is about reducing the tax burden on my passive income. Cost basis isn’t really the point.
I looked at it this way: in the taxable account I only get to keep $0.396/share after 28% income tax. With a cost basis of $9.40, that would equate to an invested yield of only 4.2%.
At a $10.50 cost basis in a tax advantaged account, I get to keep all $0.55/share which is a 5.2% yield.
By this logic, this move is “worth it” up to a share price of $13.06 (the threshold where a $0.55 dividend yields 4.2%
I only did half the position though (2 contracts) in case things get weird over the next couple months and the share price drops. We’ll see.
Why did I even buy REITs in my taxable account in the first place?
Oh that’s right, because I didn’t know WTF I was doing.