Selling naked puts on dividend paying stocks?

Discussion in 'Options' started by dman81, Jun 10, 2013.

  1. dman81


    Hello everyone,

    Just need some clarification on the implications of selling naked puts on dividend paying stocks. Do I have to pay the dividend? Is the stock put to me on ex-divvy day?

    I know that for covered calls the seller of the calls pays the dividend and usually has their long position exercised. Does this hold true for naked puts?

    Thank you!
  2. You don't pay dividends if you are short options. Dividends are only paid if you are short the actual shares.
  3. Divs are implied into the option also short put is the same thing as covered call.
  4. dman81


    Where can I read more about this? I did an extensive google search to no avail. The query I used was naked puts and dividends and nothing useful was found.
  5. tbaylx


    Your only obligation as a short put seller is to buy the stock if it gets put to you.

    Being short calls obligates you to provide 100 shares of the underlying if called away.

    In neither case do you have any dividend obligations being short calls or puts.
  6. elite74


    You only have to pay the dividend if you are short calls and then they exercise the call before the dividend date.

    Being short a put gives someone the right to sell you the stock, so you would not be short the shares or have to pay any dividend.
  7. dman81


    Thank you guys!
  8. You don't owe dividends in the same sense that you owe dividends if you went short the underlying, but they end up being implied in the premium.

    Here's a simple exercise to prove this to yourself.

    If you construct a position such that you're short short a put and long a call (synthetic long forward). Say the forward did not imply divs, I could simply go long the underlying and sell the forward thus arbing the div (and collect carry on the proceeds). By that logic, options must imply the div.