Remember the stock borrowing is only for a daily basis. So you are not limited on selling covered calls against it. Also, i checked with IB-key accounts team and they are covering my dividends as well when shares are lent. Its extra income. If you have access to IB-key accounts, find out why you lost dividends. You shouldn't. My fund is acquiring SNAP through short straddles, so basically been acquiring them at a 10% discount and selling them at a 7% premium.
I see, so you are earnings premium. That could work. I did receive payments to cover the dividends. However, since I was holding a lot of qualified dividends, although the payments are for the same amount as the dividends that I would have received, they are taxed at a higher rate than the qualified dividends. So although I made some money by using the program, I was taxed at a higher rate on some stuff. Eventually when I dump the qualified dividend-receiving stocks, I plan to resubscribe to the program as I think it's a good program. I just wish they would not loan out stocks that have qualified dividends during the day where they receive the dividend. They say that they try to do that, but no guarantees and in my case, they didn't.
There can be another situation where you don't receive the dividend directly but a Payment In Lieu. If the stock were bought on margin does IB consider themselves the "legal owners" of these stock. Because you borrowed money from IB to buy these stock. As IB is the legal owners, do they receive the dividend, which they then forward to you as Payment In Lieu of Dividend. The US tax rate is different.
I don't think it works that way. For the same reason that a bank does not have to pay property tax on the mortgages that it holds. It's the "owner's" responsibility even if the bank owns the property.
Sorry, I'm simply relaying what the IB rep explained me on why I received Payment In Lieu instead of Cash Dividend. My account does not participate in the Stock Yield Program, and the stock was bought on margin. http://ibkb.interactivebrokers.com/node/42 https://ibkb.interactivebrokers.com/article/2713
I agree with you on the payment in lieu, I mentioned that and the tax disadvantage in one of my posts above. If you buy a stock on margin and are not enrolled in the yield enhancement program, then I would assume you would get a standard cash dividend. Otherwise, having to pay a higher tax rate would be a big disadvantage to using margin for some people.
I contacted IB because I saw on a monthly overview that for a stock I received a bit of cash dividend plus a payment in lieu of dividend. Both payments were on the same day and were on the same stock symbol. The IB rep showed me that a portion of my buy action had been on margin. It is the portion of this position which was bought on margin which generated the payment in lieu. The other portion (paid for with my own money) generated the cash dividend. I agree with you that tax could be an influencing factor for some traders. My trading however is not based on dividend revenues, so the way it is taxed is not so important to me.