Options Jive

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Do You Have Dividend Risk?

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

The bond ETF (TLT) has dividends tomorrow, will I be affected? Tune in as Tom and Tony walk through assignment risk when the ex-dividend date approaches!

As traders, the main date we’re concerned with is the ex-dividend date. This is the date where if you buy the stock before this date you’ll receive the dividend. If you are short options, this is the date you should pay attention to.

If the option buyer decides to exercise the option, they give up the extrinsic value and the seller of the option keeps this amount. In general, the rule is the lower the extrinsic value, the higher the probability of being assigned the stock.

If we do have risk going into an ex-dividend date, we have three choices:

  • Roll to a further out expiration with greater extrinsic.

  • Roll the position out-of-the-money. But since this will be done for a debit, the costs can be reduced with a put.

  • Close the position.

Be sure to tune in to see Tom and Tony discuss dividend risk!

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