Beware: Call writers must pay dividend

Quote from Option Trader:

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.
More...
I am not sure if you agree or disagree with me.

When you say that "Calls fully factors in the dividend" does that mean they are cheaper (my position) or more expensive?

Relative to your "sell the Puts before ex-dividend" statement: Puts are more expensive when a dividend is pending and they become less expensive upon ex-dividend (vice versa for Calls). So basically I agree that you cannot make money shorting Puts before ex-dividend, but I think my original premise is still valid (i.e., dividends make Calls cheaper & Puts expensive).
 
Quote from Arnie Guitar:

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.: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.
More...
You are right to be confused because some of the notes in this thread appear incorrect.

Like you say, If you own the stock then you have a covered Call and there is no requirement to pay the dividend.
 
So, to sum it up,.....

When my covered, in the money MO goes ex-div, and the call is not exercised, and I own the stock the day before ex-div, the day of ex-div, and the day after ex-div, I will get the dividend.

Right?
 
Quote from Don87109:

I am not sure if you agree or disagree with me.

When you say that "Calls fully factors in the dividend" does that mean they are cheaper (my position) or more expensive?

...but I think my original premise is still valid (i.e., dividends make Calls cheaper & Puts expensive).
More...
-----------------------------------------------------------------------------------
All what I meant was to add that if "you" want to buy the calls long to take advantage of the dividend it won't work because the specialist do protect themselves in the "ask" quote.

I agree with your premise for out-of-the money calls being cheaper, but of course the in-the-money ones have some upward pressure.
 
Quote from Arnie Guitar:

So, to sum it up,.....

When my covered, in the money MO goes ex-div, and the call is not exercised, and I own the stock the day before ex-div, the day of ex-div, and the day after ex-div, I will get the dividend.

Right?
More...

On the day of ex-dividend you can already unload the stock. Ex-dividend merely means the day that is too late to buy the stock and get the dividend, so anyone who you sell the stock to will not get the dividend, only you.

It will all depend on if you will see on ex-dividend day if the day before they exercised the in-the-money calls you sold them.
 
Thank you!
I admit I feel like a kindergartner amongst college graduates.
Thanks to all of you for your patience, and willingness to explain these things. You guys have forgotten more about these things than I will ever know,
I am here not even 24 hours, and I have learned so much already.

Thanks again,

Arnie
 
Quote from Madgenius:

The call may not seem to reflect the div.
because the call reflects the value of the
dividend less the value of the put. [/B]
More...
-------------------------------------------------------------------------

It could be your right (i.e. that it is only after factoring in the cost of buying the puts when writing the covered calls), but if yes, it would seem to me a great strategy to write bear credit spreads right before ex-dividend, and I doubt that would be the case.
 
Quote from Arnie Guitar:

So, to sum it up,.....

When my covered, in the money MO goes ex-div, and the call is not exercised, and I own the stock the day before ex-div, the day of ex-div, and the day after ex-div, I will get the dividend.

Right?
More...
Right.
 
Quote from Option Trader:

... calls to be exercised (the day before ex-dividend) and you will have to pay the dividend out of your own pocket as if you were short the stock!


You are short the stock at that point... not sure why this is so shocking? That is the nature of writing options and having them assigned to you.


Brokers do a terrible job regarding disclosure of this point, and the rule is a bit insane, because in ever other way (e.g. notice to you, margin requirements, etc.) only begins the next day. If this ever happened to you, I may have an attorney and expert witness lined up for you. You can send me a message.
More...

I do not mean to sound harsh, but I am tired of everyone saying they need to be protected from themselves. Fast-food making you fat... do eat it. Option trading making you poor... trade something else or don't trade at all.

Everyone claims they know everything about options when they are trying to get the account setup with their brokers. Then, when they have a problem, they claim stupidity and think they should have been protected from their own bad trade.

Arbitration is filled with people crying about the money their broker let them lose. Next, out come the option agreements where they claimed to be an expert with X number of years of professional experience.

Lesson learned.... move on. Everyone makes costly mistakes that make them feel sick to their stomachs. It is just part of the game.

:)
 
You must log in or register to reply here.
Back
Top