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.
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.
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 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?
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.
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.
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.
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!