Apple...Special dividend effecting the stock (option) price

C

Cabin111

I do covered calls...Yeah, boring. I did one years ago on a stock that released "a special dividend"...I didn't get it. The person who bought my option was entitled to it.

Fast forward to Apple. They are sitting on SO much cash!! At some point they will buy something, or just throw up their hands and bring back (repatriate) their huge holdings and pay a special dividend. In that case I am out the profit. Is this possibility written into the price of Apple options?? Is the price (value) more at just OTM compared to way OTM because of this slight chance?? It seems like this would be less likely to happen if the Democratic Party won in Georgia and controlled congress and the presidency...Higher taxes.
 
FSU said:
Generally when a special dividend is issued, the OCC will adjust the options.
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You are correct...But I won't be the one to benefit, if I have the covered call "sell to open". And if Apple ever did it, it could be a huge amount. If I recall, about 10 years ago people bought Apple in the hopes of getting that special dividend that never appeared...
 
BKR88 said:
Only stock holders receive dividend payments, including special dividends.
Stock price & option prices will be adjusted on the day of the special dividend.

https://en.wikipedia.org/wiki/Special_dividend
https://www.simplysafedividends.com...nd-definition-rules-and-impact-on-stock-price
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You are correct...So my option that was out of the money, is now in the money and getting called away at/near the close. The buyer of the option gains from the special dividend...Not me. But I knew what could happen when I sold my call...

That is why the special dividend would more likely happen at Apple, than at say A T & T, with their 235,000 unionized employees...
 
Cabin111 said:
You are correct...So my option that was out of the money, is now in the money and getting called away at/near the close. The buyer of the option gains from the special dividend...Not me. But I knew what could happen when I sold my call...
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The price of the option you sold will be adjusted so it will remain OTM. You will hold your stock position.
The price of the stock will be adjusted lower so the option will definitely not be ITM, even after it is also adjusted.
The only way you benefit from a special dividend is if the stock rises after the announcement. If you have a $200 stock that pays a $50 dividend then on payment day you'll have a $150 stock plus $50 cash in your account so what did you gain? Nothing but cash in your account and a lower stock price. Account value will remain the same unless the stock price rises before or after payment.
***BTW, as the one article stated, there's no advantage to receiving a special dividend. Stock may get a bounce when it's announced so stock holders may benefit from the dividend chasers.
 
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BKR88 said:
The price of the option you sold will be adjusted so it will remain OTM. You will hold your stock position.
The price of the stock will be adjusted lower so the option will definitely not be ITM, even after it is also adjusted.
The only way you benefit from a special dividend is if the stock rises after the announcement. If you have a $200 stock that pays a $50 dividend then on payment day you'll have a $150 stock plus $50 cash in your account so what did you gain? Nothing but cash in your account and a lower stock price. Account value will remain the same unless the stock price rises before or after payment.
***BTW, as the one article stated, there's no advantage to receiving a special dividend. Stock may get a bounce when it's announced so stock holders may benefit from the dividend chasers.
More...

Yeah, you are correct...I'm wrong. It just seems when a company declares a special dividend, the markets (individuals, pensions, mutual funds) wake up and take notice. I've never had a covered call on a stock, declare a special dividend, that didn't get called away...

Also some of my value stocks...Others see the value in them as well. There goes another covered call. This is why I am doing some rethinking on smaller value stocks. I am buying it because I believe that it is solid. I am going with a higher amounts on my options and also doing leaps. Say a value stock (good fundamentals) is at $50., I'll do a leap for Jan 22 at $70. Gain a smaller income, but hope that other investors seeing the value and buy. Another scenario, a large corporation buy out the company or management take it private. After about 20 years of options, I am finally figuring it out...
 
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