heh same here. I found it hit or miss with the assignments. Looking at PRU this AM, there are some deep ITM Nov calls still with some OI, so some people are leaving money on the table, which is what attracted me to this originally in the 90s. Finding them, or rather dodging the assignment, is the hard part since its out of your control.
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Dividend capture with covered calls
- Thread starter madbrain
- Start date
heh same here. I found it hit or miss with the assignments. Looking at PRU this AM, there are some deep ITM Nov calls still with some OI, so some people are leaving money on the table, which is what attracted me to this originally in the 90s. Finding them, or rather dodging the assignment, is the hard part since its out of your control.
Quote from arbtrader:
heh same here. I found it hit or miss with the assignments. Looking at PRU this AM, there are some deep ITM Nov calls still with some OI, so some people are leaving money on the table, which is what attracted me to this originally in the 90s. Finding them, or rather dodging the assignment, is the hard part since its out of your control.
Yeah I was hoping that only 90% would have been assigned...no dice. Too bad would have been a good winner
no he didn't
there wouldn't have been any time value to collect when opening this position a day before the dividend. there's no free lunch here, really. option prices adjust as much as they can without doing less than intrinsic, because everybody knows the div is coming. if you get assigned, which you likely will, you pay costs of getting into position in the first place (cost if the options aren't that liquid could be quite heavy) + commission.
the trick of betting on people not exercising is widely know. marketmakers, with a fraction of our comm costs, were writing & buying heavily already. yesterday's volume in the nov 47 was over 5k in contracts with an oi of 270 or so. the trick is simple: the mm exercise their own 5k, which is spread over all 5270 contracts by a lottery; even if people wouldn't have exercised here, which they did, the posters here would still have been extremely(!) unlikely to not get assigned and probably the marketmakers would have taken it all anyway.
there wouldn't have been any time value to collect when opening this position a day before the dividend. there's no free lunch here, really. option prices adjust as much as they can without doing less than intrinsic, because everybody knows the div is coming. if you get assigned, which you likely will, you pay costs of getting into position in the first place (cost if the options aren't that liquid could be quite heavy) + commission.
the trick of betting on people not exercising is widely know. marketmakers, with a fraction of our comm costs, were writing & buying heavily already. yesterday's volume in the nov 47 was over 5k in contracts with an oi of 270 or so. the trick is simple: the mm exercise their own 5k, which is spread over all 5270 contracts by a lottery; even if people wouldn't have exercised here, which they did, the posters here would still have been extremely(!) unlikely to not get assigned and probably the marketmakers would have taken it all anyway.
Quote from madbrain:
Which call did you write ? Jan 19 2013 $30 ?
if you had written this one, you wouldn't have been assigned, but you also wouldn't have made any profit. yes you would have collected the div, but the option price wouldn't have fallen with the div, because it was already priced in. the only scenario in which it isn't priced in is when it makes the option go below its intrinsic value, that's not the case here (on the contrary: time value is way larger than the div). people exercising anything in this series would have been doing ev- stuff, that's why they didn't. trying to collect div here makes no sense.
there wouldn't have been any time value to collect when opening this position a day before the dividend. there's no free lunch here, really.
OK. But what he did is somewhat different than what I was suggesting, which was to write a very long (LEAPS), DITM call where there would still be time value. Still wonder what the odds of assignment would be in that case.
Quote from madbrain:
OK. But what he did is somewhat different than what I was suggesting, which was to write a very long (LEAPS), DITM call where there would still be time value. Still wonder what the odds of assignment would be in that case.
odds of assignment would have been pretty much nil, because, as i tried to explain in my previous post, exercising is not what anyone should be doing here, at least not in the 2013 $30 you mentioned. neither should you be writing unless part of some completely div-unrelated strategy with regards to the underlying stock
bjw,
That makes sense if we assume that the person who would be exercising the call is the same one who bought it from me the day I wrote it.
But as we know, option assignments are a lottery. Other people may have bought that same call from someone else on a previous day, when the intrinsic value of the call was much lower. The intrinsic value may have gone up, way more than what they paid for the time value. Then, they want to exercise it early to lock in their profit without waiting 2 years to pocket it. Someone would get assigned in this case. I just want to know the odds that it would be me.
I suspect I would have to look at past volume for that particular call to figure it out. And also figure out exactly when they were written. At least the day to get a range, if not the specific time. Is that data publicly available ?
Quote from bjw:
if you had written this one, you wouldn't have been assigned, but you also wouldn't have made any profit. yes you would have collected the div, but the option price wouldn't have fallen with the div, because it was already priced in. the only scenario in which it isn't priced in is when it makes the option go below its intrinsic value, that's not the case here (on the contrary: time value is way larger than the div). people exercising anything in this series would have been doing ev- stuff, that's why they didn't. trying to collect div here makes no sense.
That makes sense if we assume that the person who would be exercising the call is the same one who bought it from me the day I wrote it.
But as we know, option assignments are a lottery. Other people may have bought that same call from someone else on a previous day, when the intrinsic value of the call was much lower. The intrinsic value may have gone up, way more than what they paid for the time value. Then, they want to exercise it early to lock in their profit without waiting 2 years to pocket it. Someone would get assigned in this case. I just want to know the odds that it would be me.
I suspect I would have to look at past volume for that particular call to figure it out. And also figure out exactly when they were written. At least the day to get a range, if not the specific time. Is that data publicly available ?
Quote from bjw:
odds of assignment would have been pretty much nil, because, as i tried to explain in my previous post, exercising is not what anyone should be doing here, at least not in the 2013 $30 you mentioned. neither should you be writing unless part of some completely div-unrelated strategy with regards to the underlying stock
That's what I wonder. Somebody could have bought this $30 call on october 3. Stock was at $43.91. The $30 call might have been worth $13.91 + time value.
On October 24, the stock is at $54.52 . The $30 call is now worth $24.52 + time value.
That investor might just think an 76% profit over 3 weeks on the intrinsic value is good enough, and exercise the call, even though there would be a slightly offsetting loss from the original time value.
Even after today's dividend and the $48.53 closing, the holder of that call might still choose to exercise it, even though the profit would be lower.
Quote from madbrain:
bjw,
That makes sense if we assume that the person who would be exercising the call is the same one who bought it from me the day I wrote it.
But as we know, option assignments are a lottery. Other people may have bought that same call from someone else on a previous day, when the intrinsic value of the call was much lower. The intrinsic value may have gone up, way more than what they paid for the time value. Then, they want to exercise it early to lock in their profit without waiting 2 years to pocket it. Someone would get assigned in this case. I just want to know the odds that it would be me.
I suspect I would have to look at past volume for that particular call to figure it out. And also figure out exactly when they were written. At least the day to get a range, if not the specific time. Is that data publicly available ?
it really doesn't matter when someone bought what and what happened in the mean time. it's not rational for anybody whatever the circumstances to exercise when the time value > div. if there isn't a div, it's never rational to exercise. if someone wants to get out of their position, they should just sell it , not exercise.
the only reason when people should exercise is the day before the div when div > time value (edit: and obviously upon expiration itself)
to strenghten my point, i did look up there were no exercises in the jan-13 30 yesterday. you would definitely not have been assigned. if you want me to look up other series let me know; they will 100% confirm what i'm saying.