What happens when you have an option calendar spread and the underlying stock goes ex-dividend?

Answer 1

As the stock price changes, so does your option price. So, as the stock goes ex-dividend, the stock price will change. As the stock price changes, so will both option prices.

The part of the equation left out here, is that sometimes the market maker will play with the volatility some so that the option price does not move as much as the stock over the dividend.

Pretty much the only time your options change is when the underlying stock splits. When that happens, so do your options! Having 3 call options going into a split will yield 6 call options afterwards. How cool is that!


Edit: BTW, having the additional options (via split) "could" cost a little more in commissions depending on if you're a buyer or seller and depending on who your broker is and how many contracts you buy/sell.

However, you did mention doing a calendar spread. So I'm presuming you're selling the front month option when the volatility is higher (presplit) and closing our those options, if and only if you need to (because they might expire worthless as you intended) near expiration. In that case, there's close to no effect on commissions.

Look at some options tables and do the math. You'll see your additional gain in selling more near the money options will outweigh the nominal buck or so in commissions.

Answer 2

there is not any assure that a inventory will circulate down via the dividend volume on x-div day. On uncommon events, it is going up extra effective than the quantity of the dividend. As occasion, inspect the inventory TPZ. On Friday it replaced into x-div to the track of 12 cents. The inventory opened at $25.70, which replaced into precisely the day before today's putting out much less the dividend, then straight away recovered - and ended the day at $25.ninety 4. in case you had shorted the inventory ( no techniques in this one ) hoping to cover on Friday, you might have lost your shirt, and then some. and you will additionally be on the hook for the dividend fee to whoever offered your shorted shares.

Answer 3

Actually, stock split on options is not cool at all. Because most likely, you would have to pay extra commissions to close the trade. There are only very few brokerage firms charge a flat fee for option trades.

For example, with Scottrade, I bought 2 contracts and paid $7+ $2.5 in commissions. After 2-1 split, I have 4 contracts. To close the trade, I would have to pay $7 + $5 in commissions. Little numbers add up...

Answer 4

Nothing. You don't own the actual stock. The price of the options will be effected the same as by any other price change in the under laying stock.