...what am I missing ? Nothing has changed has it ? That is these behaviours have always been part of equity options ?
Beware: Call writers must pay dividend
- Thread starter Option Trader
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...what am I missing ? Nothing has changed has it ? That is these behaviours have always been part of equity options ?
I don't follow your logic if you are talking about Call options (which was the original premise). That is, your reply implies Calls are more expensive because of dividends. However, as I recall dividends make Put options more expensive and Call options cheaper.
Am I missing something?
I know people doing options for over 20 years who never knew of this. Nowadays, people do market scans and find the best option plays, and end up getting caught with spreads and other plays that look and are "too good to be true."
Response to Don87109:
The ask price to buy calls long fully factors in the dividend, the bid price sometimes does and partially.
What you are saying regarding puts: Quite interesting, but even after the ex-dividend date the ask price of puts remains high, so if you though you would sell the puts short before ex-dividend to capture a nice premium by the stock drop the next day, I think you will be disappointed.
The ask price to buy calls long fully factors in the dividend, the bid price sometimes does and partially.
What you are saying regarding puts: Quite interesting, but even after the ex-dividend date the ask price of puts remains high, so if you though you would sell the puts short before ex-dividend to capture a nice premium by the stock drop the next day, I think you will be disappointed.
Reply to Madgenius
The difference you made is a good point--only a bit theoretical. I subscribed to a service ("Ex-dividend") to find the highest paying dividend in-the-money calls, to see about possibility of selling covered calls (in-the-money), but I saw quite consistently that the bid price did not factor in the dividend well.
The difference you made is a good point--only a bit theoretical. I subscribed to a service ("Ex-dividend") to find the highest paying dividend in-the-money calls, to see about possibility of selling covered calls (in-the-money), but I saw quite consistently that the bid price did not factor in the dividend well.
Wait a minute,............ wait a minute,........ hold it
Let's take my example,
Mo goes ex-div about 3-4 days before contract expiration
I own the stock, all of my contracts cover stock I own.
You said I might be responsible for the dividend out of my pocket if the stock is called before ex-div?
Huh?....
I don't own it anymore if it's called away.
Or are you saying that the owner of the call is entitled to the dividend while the call is active, because it is in the money or..
Oh forget it, I'm totally confused.
I remember awhile back, a contract was executed before ex-div, the stock was well in the money, and was called away the day before ex-div.
Let's take my example,
Mo goes ex-div about 3-4 days before contract expiration
I own the stock, all of my contracts cover stock I own.
You said I might be responsible for the dividend out of my pocket if the stock is called before ex-div?
Huh?....
I don't own it anymore if it's called away.
Or are you saying that the owner of the call is entitled to the dividend while the call is active, because it is in the money or..
Oh forget it, I'm totally confused.
I remember awhile back, a contract was executed before ex-div, the stock was well in the money, and was called away the day before ex-div.
You're fine if you own the underlying stock, and they would likely take the dividend away from you. (It could depend upon if the specialists, who are the main bid and ask, have sufficient in-the-money puts to exercise and cover the price drop the next day; they will do their calculations religiously.)