"dividend risk" when trading options.. what are they? - Traders Hideout | futures io social day trading
futures io futures trading


"dividend risk" when trading options.. what are they?
Updated: Views / Replies:2,040 / 5
Created: by RedK Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

"dividend risk" when trading options.. what are they?

  #1 (permalink)
Knowledge Seeker
Dubai, UAE
 
Futures Experience: Intermediate
Platform: TOS, TradeStation
Broker/Data: OX, TradeStation
Favorite Futures: Stocks & Basic Options
 
RedK's Avatar
 
Posts: 171 since May 2012
Thanks: 44 given, 138 received

"dividend risk" when trading options.. what are they?

i read about dividend risks when you trade options around dividend ex-date and other key dates.. never was able to digest what i read.. can someone please explain in simple terms..
is there a scenario where you pay (vs receive) the dividends if you're on the option's short side? or did i get this wrong? thx

Reply With Quote
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Trading Apprentice
Raleigh North carolina United States
 
Futures Experience: Advanced
Platform: can not answer
Favorite Futures: Options
 
Posts: 4 since Nov 2012
Thanks: 0 given, 5 received

dividend risk


Here's the deal, you have to be long the stock on the ex-date to collect the dividend. (long a call option on the stock provides no dividend rights) If you are short an option that is in-the-money at ex-dividend you may be required to deliver 100 shares of stock at the strike price. (This is because owners of the call options are exercising their rights, they want to take delivery of 100 shares of stock to collect the dividend. Hint- If you want to avoid all this, trade European style options... (such as the Rut or SPX).

Reply With Quote
 
  #4 (permalink)
Knowledge Seeker
Dubai, UAE
 
Futures Experience: Intermediate
Platform: TOS, TradeStation
Broker/Data: OX, TradeStation
Favorite Futures: Stocks & Basic Options
 
RedK's Avatar
 
Posts: 171 since May 2012
Thanks: 44 given, 138 received


optiontrader767 View Post
Here's the deal, you have to be long the stock on the ex-date to collect the dividend. (long a call option on the stock provides no dividend rights) If you are short an option that is in-the-money at ex-dividend you may be required to deliver 100 shares of stock at the strike price. (This is because owners of the call options are exercising their rights, they want to take delivery of 100 shares of stock to collect the dividend. Hint- If you want to avoid all this, trade European style options... (such as the Rut or SPX).

@optiontrader767, yes, i get this part .. "If you are short a [CALL] option that is in-the-money..." .. i have to deliver the stocks if they're "called" .. if i'm short an ITM PUT, i have to take the stock (the stock is PUT to me) and pay the strick price which will be higher than current market price.. (been thru both from short side before)

but where exactly is the "dividend risk" .. ? if in the scenario of a short CALL and comes ex-date, do i deliver the stock and *also* pay the call buyer the diviends on top of that? that's the part i'm not clear about...

thanks,
K

Reply With Quote
 
  #5 (permalink)
Trading Apprentice
Raleigh North carolina United States
 
Futures Experience: Advanced
Platform: can not answer
Favorite Futures: Options
 
Posts: 4 since Nov 2012
Thanks: 0 given, 5 received

dividend risk

Answer
This post has been selected as an answer to the original posters question Answer

The only time you have to pay the dividend is if you are short the stock. By short I mean you borrowed the shares from your broker (sold them) with the intent to buy them back later at a lower price. (I think this is a "weak sauce" out-dated strategy).
If you are "called out" you have to deliver stock. This means you must have the cash to buy 100 shares (in the market) in order to deliver them. (100 shares per option contract) Or you must in turn exercise one of your long options to get the stock. Remember, when you first purchased that long option (the one I mention in the previous sentence) you paid "extra" for the time value. If you exercise it, you lose any time value that remains in that option... this is risk.

Look at the other side... If you are thinking about exercising an option to "get stock" to collect a dividend, you have to weight the dividend amount that you will receive to the time value you will lose.

Reply With Quote
The following user says Thank You to optiontrader767 for this post:
 
  #6 (permalink)
Elite Member
New York, NY
 
Futures Experience: Advanced
Platform: OptionVue
Broker/Data: IB
Favorite Futures: RUT, SPX options
 
Bookworm's Avatar
 
Posts: 157 since Apr 2010
Thanks: 64 given, 144 received

Answer
This post has been selected as an answer to the original posters question Answer

The dividend risk applies when you are short deep in the money American options. If the dividend is worth more than the time premium of the options then the long may exercise the option right before the ex-dividend date to acquire the stock and receive the dividend which he would not get from just holding the call.

Reply With Quote
The following user says Thank You to Bookworm for this post:

Reply



futures io > > > "dividend risk" when trading options.. what are they?

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
venture into options using "OPTIONS on the OPEN" dlatbm Trading Reviews and Vendors 1 June 19th, 2012 09:30 AM
Bill Gross' Response To The Euro Summit: "Hard To Trust; Risk Off" Quick Summary News and Current Events 0 December 9th, 2011 12:20 PM
Fukushima: "China Syndrome Is Inevitable" ... "Huge Steam Explosions", or "Nuclear Bo Quick Summary News and Current Events 0 November 22nd, 2011 02:50 AM
How to change "Stop Loss" and "Take Profit" in "shElderImpulse" Strategy javed759 NinjaTrader 1 November 1st, 2011 11:44 PM
"mid", "buy", "sell" volumes lokgotkent Traders Hideout 6 September 30th, 2011 02:24 PM


All times are GMT -4. The time now is 02:57 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-18 in 0.11 seconds with 29 queries on phoenix via your IP 54.92.194.75