Hi,

Is it possible to use options to protect your capital if you are buying a stock just to collect the dividend ?

i.e

I purchase x amount of PFH stock just to collect the dividend. At the same time of purchase I buy a put option
and sell a call option to protect my capital until I sell the stock after the divvy is recieved.

Thanks
Francis.

Hello Francis,  

Yes. The posiiton you are describing is called a collar and is used by conservative investors to accomplish exactly what you describe.  The put protects you against a large loss on the downside and the call is sold to pay for the put.  

Just be careful.  After a stock goes ex-dividend, it usually drops in price by an amount equal to that dividend.  Thus, 'collecting the dividend' is not always profitable.  

Mark

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Mark D. Wolfinger
Create Your Own Hedge Fund: Increase Profits and Reduce Risk With ETFs & Options
http://www.mdwoptions.com