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About to sell some covered calls; am I doing this right?
- Thread starter 1a2b3cppp
- Start date
If you are the writer you are responsible for delivery of the dividend along with the stock. That is what they mean by dividend risk in call options. Do you think the owners of the ETF are going to pay it?
I grant you it doesnt happen that often but it can especially if you have little time decay left in the option and you are in the money.
I grant you it doesnt happen that often but it can especially if you have little time decay left in the option and you are in the money.
"Dividend risk" refers to the chance that you as the owner of the stock may not receive a dividend because the person who bought your call exercises so they can be the owner of record when the dividend is paid.
total nonsense being told here about dividend here, either you are called before dividend date and you lose the stock with the dividend or you are called after the dividend date, then you are called upon the stock ex-dividend. It's one or the other, no paying late dividends afterwards or something ...
I will take one more wack at this.
Say I have an in the money call calendar spread. I have little time premium left and I am exercised on a dividend payout date. I am assigned. I now have to exercise my long call to cover myself because I am short stock.
I will have to pay the dividend on the short call on the assignment in addition to delivering the stock .. This has happened to me a time or two on IBM and I now dont do call calendars in things that have dividends.
This is called your at dividend risk in call options. Yes you would be paid on your stock the dividend but when called out they would be capturing the dividend just like I would on my calls on my calendar.
Say I have an in the money call calendar spread. I have little time premium left and I am exercised on a dividend payout date. I am assigned. I now have to exercise my long call to cover myself because I am short stock.
I will have to pay the dividend on the short call on the assignment in addition to delivering the stock .. This has happened to me a time or two on IBM and I now dont do call calendars in things that have dividends.
This is called your at dividend risk in call options. Yes you would be paid on your stock the dividend but when called out they would be capturing the dividend just like I would on my calls on my calendar.
That's not really comparing apples to apples. Unlike a covered call, you aren't actually in possession of the shares with a spread. First you are assigned (so you are short the shares) and then you exercise your long to acquire shares. That is a multi-step process. In the covered call situation, you are assigned, your shares are taken, and you're flat. End of story.
I sold covered calls for well over a year on stocks that paid monthly dividends (ERF, O, PGH). Once a month I would sell the front month call (usually slightly OTM, or infrequently one strike ITM if I thought it would move against me).
If the option was ITM at expiration, I got assigned. Normally I got the dividend. Some times people called me out ahead of time, in which case they got the dividend, but that dividend didn't come from me, it came from the company. There wasn't a single time that I paid the dividend.
I sold covered calls for well over a year on stocks that paid monthly dividends (ERF, O, PGH). Once a month I would sell the front month call (usually slightly OTM, or infrequently one strike ITM if I thought it would move against me).
If the option was ITM at expiration, I got assigned. Normally I got the dividend. Some times people called me out ahead of time, in which case they got the dividend, but that dividend didn't come from me, it came from the company. There wasn't a single time that I paid the dividend.
The only way that you pay out the dividend is if you are short the stock the day before the ex-div date. Period. End of story. Not a payout date but the ex-div date.Quote from pberndt:
Say I have an in the money call calendar spread. I have little time premium left and I am exercised on a dividend payout date. I am assigned. I now have to exercise my long call to cover myself because I am short stock.
I will have to pay the dividend on the short call on the assignment in addition to delivering the stock .. This has happened to me a time or two on IBM and I now dont do call calendars in things that have dividends.
This is called your at dividend risk in call options. Yes you would be paid on your stock the dividend but when called out they would be capturing the dividend just like I would on my calls on my calendar.
If you are assigned on your short calls the day before ex-div and you exercise your long calls, it's a wash - no dividend involvement for you. If you do not exercise your long calls or if you exercise them the next day, you pay the div. on your short stock.