know your options: covered calls
I just read your article regarding covered calls. It was very well written and informative.

I do have one question, however. Is there any circumstance where I would lose the dividend by writing calls?

Thank you in advance.


Glenda King

Hi Glenda,


Yes there is that possibility.  The larger the dividend, the greater the possibility of losing the dividend.
Also, the closer ex-dividend date is to expiration, the greater that possibility.

Here's how it works.  You sold the call option, and it's owner has the right to exercise that option any time 
before it expires.  You have no say in the matter.  You cannot force the call owner to exercise, nor can you prevent it.
When the stock pays a decent dividend, it's often (not always) in the option owner's best interests to exercise the call one
day before the stock goes ex-dividend.  By doing so, the call exerciser owns the stock and collects he dividend.  You, the
(former) stockholder were forced to sell your stock 'last night' and no longer own the stock and thus, cannot collect the dividend.

I say 'last night' because you first learn of being assigned an exercise notice the morning after the option owner exercises.  Thus,
if you see that you still own the shares on the morning the stock goes ex-dividend, then you collect the dividend.  When you have lost
the dividend, you notice that you no longer own the stock and are no longer short the call options on that ex-dividend day.

Depending on how well you understand options, there steps you can take to try to 'save' the dividend and there is a good way to determine
whether you should expect to receive that assignment notice.  If you want details, write again.


Mark D. Wolfinger
Create Your Own Hedge Fund: Increase Profits and Reduce Risk with ETFs & Options