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Big call volume in MCD
- Thread starter dmo
- Start date
Thanks Xflat for that detailed explanation.
Most people think of futures as arcane but compared to stocks, it seems to me that futures are actually very straightforward and simple. Maybe it's just what you're used to, but in futures there are no dividends to worry about and no "hard to borrow lists" or other difficulties shorting - shorting a futures contract is no different from buying it.
You'd think an option is an option, but there is quite a bit to learn for someone moving from options on futures to options on equities. Two different worlds entirely.
Most people think of futures as arcane but compared to stocks, it seems to me that futures are actually very straightforward and simple. Maybe it's just what you're used to, but in futures there are no dividends to worry about and no "hard to borrow lists" or other difficulties shorting - shorting a futures contract is no different from buying it.
You'd think an option is an option, but there is quite a bit to learn for someone moving from options on futures to options on equities. Two different worlds entirely.
Ok - so I'm learning options and soaking up a lot quickly - but your explanation has left me confuzed. Probably because I don't understand all the acronyms yet.
But a question:
You said something about exercising the option ON the ex-dividend day in order to "capture" the dividend. Is that true? My understanding was that you had to be the owner of record the DAY BEFORE the ex-dividend date. This because ex-dividend meaning "without dividend." So therefore if I picked up a stock ON the ex-dividend date - I picked up a stock "WITHOUT" dividend.
I thought I had more questions on the rest - but I'm trying to digest it yet. Still confuses me.
Thanks.
But a question:
You said something about exercising the option ON the ex-dividend day in order to "capture" the dividend. Is that true? My understanding was that you had to be the owner of record the DAY BEFORE the ex-dividend date. This because ex-dividend meaning "without dividend." So therefore if I picked up a stock ON the ex-dividend date - I picked up a stock "WITHOUT" dividend.
I thought I had more questions on the rest - but I'm trying to digest it yet. Still confuses me.
Thanks.
Quote from xflat2186:
Dividend Lottery Spreads is a play that market makers will do with each other, itâs not really a retail traders strategy.
On x-dividend day itâs a certainty that most of the calls which should be exercised to capture the dividend via the long stock from the exercised calls will in fact get exercised. The other side of the coin is that there are always a small percentage of sloppy investors who donât realize their mistake and fail to exercise those calls. The idea for the market makers is to try and maneuver them selves on to the short side of the open interest in strikes which should be exercised for the dividend play.
It goes like this: There needs to be a fairly decent amount of open interest in two strikes which should be exercised. Then the market makers will trade that vertical call spread with each other for dead fair value, and theyâll do it back and forth each time theyâll submit an exercise card for the long side right away. Now granted they may trade more spreads then there is open interest and this wont change the OI one bit because all the calls they have traded will be exercised. The catch is that on the short side of the spread they will now be part of the OCCâs random assignment sequence and there hope is that since not all investors will know to exercise those call that the market makers will not get assigned on all of the short side of the spreads they did. This would result in long stock from the side of the spread they exercised netting off the short calls they hope they donât get assigned on and they then collect the dividend on the long stock basically free aside from their transaction costs.
It used to be a lot more popular years ago when both investors were less sophisticated and therefore more OI went unexercised and options were single listed on individual exchanges so the market makers were not battling ones on other exchanges to get into the pool of unexercised calls.
So are you saying that if I actually outright purchased a stock the day before ex-div - I'm good for dividend - but outright purchase of stock ON ex-dividend - I'm not getting the dividend?
ANd then with an option- exercising an option ON ex-dividend day I'm good?
Why is there the difference?
ANd then with an option- exercising an option ON ex-dividend day I'm good?
Why is there the difference?
Quote from xflat2186:
As long as you exercise on X div day you're good. You should realize that the capture play I described will not really work for a retail trader.
So look at NAT for instance. Are you telling me that I could have purchased NAT on the VERY day it was x-div (that being 8/18/08) and then sold it the same day to qualify for the dividend? (Forget about price consequences for a moment.)
This is in direct conflict with what my broker tells me. And I've read it NUMEROUS places. You have to own the stock the day before x-div and you can sell it on x-div - and you qualify for the dividend.
This is in direct conflict with what my broker tells me. And I've read it NUMEROUS places. You have to own the stock the day before x-div and you can sell it on x-div - and you qualify for the dividend.
Quote from xflat2186:
You can purchase the stock on the day the stock goes X and still get the div. Just realize that its not like getting a free lunch and as soon as the bell rings on x div day the stock will fall.
Quote from xflat2186:
You can purchase the stock on the day the stock goes X and still get the div. Just realize that its not like getting a free lunch and as soon as the bell rings on x div day the stock will fall.
I'm confused here, xflat. As far as I know, the last day to buy the stock to get the dividend is the day before the ex-dividend date, which is why the stock drops by the amount of dividend on the open of the ex-div date. Also, all the exercises of calls for dividends happen on the day before, so if you are assigned on a short call then by the time you find out it is already the ex-div date and you have to pay the dividend.
So with that said, I don't see how you can buy the stock on the ex-div date and still get the dividend.
Quote from xflat2186:
If a stock was going X div today you needed to own it before the close today or have exercised your calls today. Tomorrow, or in after hours today the stock will typically drop by approx the amount of the div. Afterhours today is really tomorrows date.
I'm sorry, but there's no way the stock drops after the close on ex-div date. If the ex-div date is Aug 21 then the stock will drop on the open on Aug 21. Look at any chart.
By definition, the ex-dividend date is the first day a stock trades without a dividend so it has to drop on the open not on the close!