Wikipedia has some interesting information on this subject. http://en.wikipedia.org/wiki/Exercise_(options) In particular, note the paragraph under "Early Exercise Strategy". "A common strategy among professional option traders is to sell large quantities of in-the-money calls just prior to an ex-dividend date. Quite often, non-professional option traders may not understand the benefit of exercising a call option early, and therefore may unintentionally forego the value of the dividend. The professional trader may only be 'assigned' on a portion of the calls, and therefore profits by receiving a dividend on the stock used to hedge the calls that are not exercised."
the days of "forgeting to exercise" are long over. if the calls are itm by 0.01 or more, they will be exercised/assigned.
Incorrect. The whole point of this thread is that the div. is not adequately priced into the ITM call. Your statement is correct regarding puts and those calls with TV.
Not true at all. This strategy is not only alive and well, but the exchanges encourage this strategy by eliminating costs for "dividend" strategies. It's an easy way for an exchange to pad its volume stats. Susquehanna is the master at this type of tiny-fraction-of-a-penny arb trading, and they will do it for SIZE.
Wow, you are getting tore apart by the forum, and frankly you deserve it. Don't mislead the beginners by pretending you are knowledgeable. To eyeball a potential exercise, compare the dividend to the price that the OTM option pair (the put) is trading. If the dividend is greater than the price of the put AND the costs associated with the exercise, then the call should be exercised.
A few years ago, for about one year, I was able to successfully trade deep ITM covered calls for the dividend. However, options started being exercised after regular trading hours so my stock was traded away the night prior to being eligible for the dividend. This, like most strategies, worked great while it worked but conditions change & you have to be flexible to what works at the time to make money.
Wow ...... One record : 8 years / 5 posts Almost 1 post every 2 years What the next ?? 2013 ?? ---------------------------------------------------------------------- jmichaelp Registered: Aug 2003 Posts: 5