I got screwed! My dividend got taken away!

G

Gogy

I like to write calls against my stock to add a bit of revenue. I realize that I risk losing the stock but I got screwed this time. One of my stocks against which I had written calls was due to pay a dividend. I like the stock so I hold it in two different accounts at two different brokerage firms. On the very morning that the stock went ex-dividend, all of my calls IN BOTH ACCOUNTS were assigned! :mad:

Now, it is my understanding that exercises are assigned randomly so it seems mighty strange that the options in both accounts held at different brokers were assigned and both on the morning that the stock went ex.

I can see why someone holding an in the money call would want to exercise if the stock was going to pay a nice dividend, but why on the morning that the stock went ex? Why not the day before? That person in theory would not know where the stock was coming from and in theory would not know if the stock being delivered to them was entitled to the dividend or not.

This smells of an insider deal - you know some play by those insidious floor traders or someone buried deep in the exchange infrastructure to steal my dividend.

Can anyone explain to me what is going on here (i.e. who made money on that deal and what was their setup)?:confused:
 
Quote from Gogy:

I like to write calls against my stock to add a bit of revenue. I realize that I risk losing the stock but I got screwed this time. One of my stocks against which I had written calls was due to pay a dividend. I like the stock so I hold it in two different accounts at two different brokerage firms. On the very morning that the stock went ex-dividend, all of my calls IN BOTH ACCOUNTS were assigned! :mad:

Now, it is my understanding that exercises are assigned randomly so it seems mighty strange that the options in both accounts held at different brokers were assigned and both on the morning that the stock went ex.

I can see why someone holding an in the money call would want to exercise if the stock was going to pay a nice dividend, but why on the morning that the stock went ex? Why not the day before? That person in theory would not know where the stock was coming from and in theory would not know if the stock being delivered to them was entitled to the dividend or not.

This smells of an insider deal - you know some play by those insidious floor traders or someone buried deep in the exchange infrastructure to steal my dividend.

Can anyone explain to me what is going on here (i.e. who made money on that deal and what was their setup)?:confused:
More...

Because the dividend would be included in their profit. If the amount of the dividend plus the current stock price is greater than the stock price, your call will be automatically assigned, and on the other side, automatically exercised. It's an OCC rule, I believe.
 
random exercise results in random assignment.

in your case, it was deliberate exercise. Therefore you get deliberately 100% assigned.



edit: if you put money on the table, you can be sure someone will come to take it.
It is time to learn basic option pricing calculations. It is NOT that difficult.
 
The only call holders not exercising would be sucker retail holders.

Anyone with any knowledge of ITM calls and divs. will exercise depending on, of course, how far ITM the calls are.

Furthermore, generally, ITM options tend to end up in the hands of MMs as traders get rid of them. You know that the MMs will exercise.

So it was very likely that you would be assigned.
 
Maybe you should think twice about writing calls against your long equity position. You are effectively short puts. Is that what you intended?
 
It always makes sense to to exercise a call option early whenever the option is trading at, or below, parity, and the stock goes ex-dividend tomorrow. In fact, the only time it makes sense to exercise a call option early is is a dividend is being paid before expiration day.

Anyone trading options should know that and as someone else said earlier, all options traders that are holding calls trading at, or below, parity and understand options will exercise them.
 
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