A lil help here...

[4444CJones4444]

Okay, my dad and I were talking options and ex dividend dates, and while we both have a decent grasp on how short CALLS are affected, we both are kind of scratching our heads with short PUTS and ex dividend dates.

Using a short SPY put at the 77 strike as an example (underlying closed at $76.71), would someone long the 77 put want to exercise the contract since there is a $0.35 dividend?

 

[Don87109]

Quote from 4444CJones4444:

Okay, my dad and I were talking options and ex dividend dates, and while we both have a decent grasp on how short CALLS are affected, we both are kind of scratching our heads with short PUTS and ex dividend dates.

Using a short SPY put at the 77 strike as an example (underlying closed at $76.71), would someone long the 77 put want to exercise the contract since there is a $0.35 dividend?

It depends on the price of the Put. If there is time value left then it becomes more expensive to exercise the put then to sell the Put. If the Put is trading at or below par then it probably makes sense to exercise the Put.

Don

 

[dagnyt]

Quote from 4444CJones4444:

Okay, my dad and I were talking options and ex dividend dates, and while we both have a decent grasp on how short CALLS are affected, we both are kind of scratching our heads with short PUTS and ex dividend dates.

Using a short SPY put at the 77 strike as an example (underlying closed at $76.71), would someone long the 77 put want to exercise the contract since there is a $0.35 dividend?

1) No one in his/her right mind exercises a put prior to the ex-dividend date. If you do exercise, you become short the stock and owe the dividend.

2) Thus, the question is: Would someone exercise after the dividend?

The answer is: It depends how deep in the money the put is. Once you exercise you have unlimited losses to the upside. Thus, the option would have to be very deep in the money before you would exercise.

And if you are a customer who is NOT paid interest on short stock (or ETF) positions, it would be insanity to exercise prior to expiration - because it gives you added risk with ZERO benefits.

Mark