If a short call position gets exercised before ex-dividend day would I be responsible for the dividend?
I own a long March call at the 140 strike and a short January call at the 147 strike. The ETF is trading at 145 and the ex-dividend date is 12/21. Since the dividend is just under $1.00 I realize that someone could exercise the 147 call if the price approached that level, but would I have to pay the dividend? I didn't think that I would have to but an email that I received from my broker implied that if I got called away that I would be responsible for the whole dividend. I thought that this was only when you shorted a stock. I realize that the email is a generic one, but is my broker wrong here?
- 7 years agoFavorite Answer
I would close that short strike, it is so close to being in the money I'm surprised you can sleep. Anyways,your broker is right, dividend risk applies to in the money options as well. All in all, I don't like these calender spreads. Why did you buy a call so deep in the money? I'm perplexed. Your short call probably barely paid for the long one. Why don't you just sell a jan put spread with 140/139 strikes if your bullish, or call spread 150/151 if bearish, or best of all wait until we get past this fiscal cliff fiasco Jan 1 then set up something.
- craysLv 43 years ago
purchase earlier ex-dividend date and intensely own on the checklist date.. so standardly, the respond isn't any. some people game dividends, yet in simple terms like shares often, not something is certain. not something unlawful, yet there are 2 classifications of dividends for tax purposes many times consistent with time held.. qualified vs uncomplicated.. and which will influence the taxation value on them. The longer held, the fewer tax... to not be puzzled with long term and short term inventory holdings. "with a view to be taxed as a qualified dividend, the investor "could have held the inventory for greater beneficial than 60 days for the period of the 121-day era that starts 60 days earlier the ex-dividend date,"