On the 15th October we placed a portfolio trade on National Australia Bank to take advantage of the upcoming dividend:
Buy Stock: $25.48
Buy $25.51 Put: $1.28
Estimated Dividends: ($0.99)
Estimated franking credits: ($0.42)
Cost of trade: $25.35
In summary, because we purchased a $25.51 put for expiry on 29th November, our downside was covered, and we have an opportunity to benefit from the share price rising above $25.51.
Although we were protected on the downside, we are still able to take advantage of a downward move in the share price. On Thursday, the 25th October, the share price had traded down to $24.64, a fall of $0.86c.
We took the opportunity to roll the $25.51 put strike to a $25.01 put strike. We received a credit of $0.415c. In effect, we benefit if the share price now rises above $25.01 instead of $25.51, a $0.50c improvement on potential profit, for a cost of $0.085c ($0.50c less $0.0415c credit).
The basis of this trade is that you think the share price will rise into the dividend on the 9th November. By rolling down the put strike you still have the cost of the downside covered and you have the potential additional profit of $0.50c.
The NAB share price currently is trading at $25.02c.
Also, we are able to place these types of trades, (Buy Stock, Buy Put) as a combination trade:
We will monitor this trade over the coming weeks.