Will My Stock Be Sold Because of the $2.00 Dividend? A Real-Life Example with Star Bulk Carriers Corp. (Nasdaq: SBLK)


On 2/21/2022, Bob wrote a 3/17/2022 $29.00 call on SBLK. On 2/26/2022, SBLK was trading at $31.76 and the cost-to-close the short call was $2.78. On 3/1/2022, SBLK was going ex-dividend for an eventual $2.00 per-share distribution. Will Bob’s shares be sold the day prior to the ex-date?

 

Case for early exercise

  • Ex-dividend dates are the main reason for early exercise
  • On 2/26/2022, the $2.78 cost-to-close premium consisted of only $0.02 in time-value with the possibility of a $2.00 per-share dividend on the horizon, if exercised

 

Case against early exercise

  • Very rare, even when ex-dividend dates occur prior to contract expiration
  • Contract expiration (3/18/2022) is far from the ex-dividend date (3/1/2022)
  • Option buyers want to be option sellers, not share owners
  • On the ex-date, SBLK will decline in value by $2.00 due to the future distribution. This is 1 of the factors in determining the stock price that day

 

Price chart of SBLK

 

SBLK Price Chart Before & After the Ex-Date

 

  • 2/21/2022: Covered call written on an accelerating price chart (red arrow)
  • 2/26/2022: SBLK appreciated to $31.76 (blue arrow)
  • 3/1/2022: SBLK declines in value on the ex-date (green arrow)

 

Discussion

Early exercise is possible, but unlikely. If it does occur, the final returns will be maximized, and the cash freed up from the sales of SBLK can be used to initiate another option-selling income stream in the same contract cycle. Unless we absolutely want to retain the underlying shares (Tax issues, for example), a case can be made that early exercise should be embraced rather than avoided.

 

Recovering markets

Now that the market has stabilized, this is a great time to join our premium member community

with its stock screening and educational (over 200 videos) benefits. For information, click here.

 

To join our mailing list & receive our free weekly newsletter: www.thebluecollarinvestor.com/blog

 

Fill Out This Form

 

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI teaemail testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Good morning Alan,

For the advances in my option trading knowledge, I feel that THANK YOU is not nearly enough. I’m now teaching my two sons the basics so they, too, can make the BCI Methodology part of their lives!

My best to you,

Jim

Upcoming event

Money Show Orlando live event

October 30th – November 1st, 2022

OMNI ORLANDO RESORT AT CHAMPIONSGATE

Visit Alan, Barry and members of the BCI team at Booth # 415

Register here

 

Sunday, October 30, 2022, at 5:00 pm – 5:45 pm EDT
Covered Call Writing: Multiple Applications Based on Current Market Conditions

Monday, October 31, 2022, at 4:30 pm – 6:30 pm EDT
Selling Cash-Secured Puts: Detailed Start-to-Finish Six-Part Program*

 

Masters Class

Comprehensive Course on Selling Cash-Secured Puts

Detailed start-to-finish 6-part program

This presentation will provide all the information, with real-life examples, necessary to master the strategy of selling cash-secured puts. The program is divided into 6 sections:

  • Section I:
  • Section II
  • Section III
  • Section IV
    • Buy a stock at a discount instead of a limit order
  • Section V
    • Ultra-low-risk put/Delta strategy
  • Section VI
    • Ultra-low-risk put/Implied volatility strategy

This presentation was developed to benefit both beginner and experienced option traders and will provide all the information needed to initiate the strategy and elevate returns to the highest possible levels.

45-minute presentation

Covered Call Writing: Multiple Applications Based on Current Market Conditions

Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)

Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

  • Normal to bull markets
  • Bear and volatile markets
  • Low interest-rate environments

A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.

Registration link 

 

Alan speaking at a Money Show event

***********************************************************************************************************************

Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.

****************************************************************************************************************





Image and article originally from www.thebluecollarinvestor.com. Read the original article here.