About to sell some covered calls; am I doing this right?

Quote from spindr0:

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.

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.
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Thank you.

Thats the drawback on covered writes. You have to watch it on the dividend dates if you want to capture the dividend and you have a short call in the money.

"you do not exercise your long calls or if you exercise them the next day, you pay the div. on your short stock." So you are saying what I have been saying in your own words. :cool:
 
Quote from 1a2b3cppp:

thanks guys. I think pberndt was just trying to confuse me.
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I don't think that he was trying to confuse. Perhaps his explanation could have been clearer, but it's not an easy concept to explain.

The "loss" is in the call pricing, but is caused by the div. payout.

With CC writes you don't pay the div., you lose the stock.

However, what pberndt was referring to was that if an Amer. style call moves ITM by enough before ex-div. - the div. cannot be completely priced in - that's why the calls are exercised.

You don't directly pay the div, but you lose a portion of it - whether you buy the call back or let it assign out. The deeper ITM the call is, the more div. you lose.

If you let it assign, you essentially pay parity. If you buy back, you should also pay about parity. If the call were Euro style, you should be able to buy it back for less than parity. That's where the loss is.
 
Quote from pberndt:

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.
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What are you smoking? People who are long calls don't get dividends, people who are short calls don't pay them. If your stock is called away you don't owe any dividend. If it is called away after the ex dividend date you get the dividend. If it is called way before the ex dividend date the exerciser of the call gets the dividend -- but it's the stock that's paying the dividend, not you.
 
Quote from pberndt:

Thats the drawback on covered writes. You have to watch it on the dividend dates if you want to capture the dividend and you have a short call in the money.

"you do not exercise your long calls or if you exercise them the next day, you pay the div. on your short stock." So you are saying what I have been saying in your own words.
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Nice try but no save for you. Using your ITM calendar call spread example to justify your incorrect statement that a covered call writer pays the dividend out of pocket was just a poor stab at saving face. Everyone replying has exercised their call on you :)
 
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