Review of Dividend Dates & Their Impact on Our Covered Call Trades

The main reason for early exercise of our covered call writing options relates to corporate dividends. The key date to be aware of is the ex-dividend date. This article will clarify and define the dates related to corporate dividends and also discuss an anomaly related to special dividends. Early exercise of our covered call options Before definitions are presented, here is the main takeaway of this article: Shareholders are owed the dividend if they are determined to be shareholders on the record date. An investor would need to own shares on the date prior to the ex-date in order to be (or become) a shareholder of record on the record date (usually the following day). Since the exercise of a call option results in the purchase of shares on the exercise date, it is not uncommon to witness in-the-money call options being exercised on the day prior to the ex-date. Dividend date definitions 1. Declaration Date The declaration date is the day that the company declares that it will pay a dividend. With this declaration, the company announces how much it will pay, the ex-dividend date, and the payment date. The declaration date is sometimes called the “announcement date” and most reliable dividend-paying companies keep to a regular declaration schedule. 2. Ex-dividend Date As of the ex-dividend date, buyers of this stock will no longer be entitled to receive the declared dividend and the stock is said to thereafter trade “ex-dividend” (without dividend). In other words, shares must be owned prior to the ex-date. Before trading opens on the ex-dividend date, the exchange marks down the share price by the amount of the declared dividend. As an example, BCI, Inc. declares a $0.50 dividend with an ex-dividend date of November 10th. Anybody who buys the shares on the 7th, 8th, or 9th—or any date prior to the 10th—will receive that dividend. When the stock opens on the 10th, it will be adjusted down by $0.50 from the 9th’s closing price. Anybody who buys on the 10th or thereafter will not be entitled to receive that dividend. As long as a stock is purchased prior to the ex-dividend date, we can then sell the stock any time on or after the ex-dividend date and still receive the dividend. A common misconception is that investors need to hold the stock through the record date or pay date. Ex-dividend dates are, therefore, the most important date to consider whenever buying a dividend-paying stock. 3. Record Date The record date is simply the date where the company looks at its ledger and determines to whom they send the dividend checks (“the holders of record”). The record date is always the next business day after the ex-dividend date. This date is unimportant for dividend investors, since eligibility is determined solely by the ex-dividend date. 4. Payment Date The payment date (or “pay date”) is the date on which a company actually pays out its dividend. Generally speaking, this date falls about two weeks to one month after the ex-dividend date. Location of ex-dividend date data in our Premium Stock Reports BCI Premium Report Ex-Dividend Date Location Why do special 1-Time dividends sometimes have ex-dividend dates after the pay date? What are special dividends? Special dividends are extraordinary one-time dividends paid by a firm, often following quarters where profits are exceptionally high, or where a firm sells a division or otherwise raises a substantial amount of unneeded cash. Special dividends are a way of returning cash to investors directly, often in place of a share buyback. Why reverse pay date and ex-date? Firms sometimes do this so that the stock’s price is not unfairly compromised. In particular, if the special dividend is a large fraction of the overall share price, then if a stock is sold to a buyer after the ex-dividend date, but before the pay date, then the seller is entitled to the dividend, but has not received it. This means the seller is in the position of having to collect the dividend from the buyer in the future. For large special dividends, these issues can be avoided by having the payment occur before the ex-dividend date. Significance to dividend capture investors Having the payment date ahead of the ex-dividend date does not fundamentally change the economics of the dividend. The stock price is still adjusted on the payment date, and that means shareholders may be able to benefit from buying the stock ahead of the dividend, if the stock’s price does not fall by the same amount as the dividend. Investors need to be sure that they do not sell the stock until after the ex-dividend date. If they do, they might have to pay the dividend to the buyer of the security. The lesson for investors here is to pay careful attention to dates when trying to capture special one-time dividend payments. Discussion For covered call writing, dividends play a secondary role. There is nothing wrong with trying to capture a dividend along with our option premiums and potential share appreciation when using out-of-the-money call options. However, it should not be the main focus of our trades. I consider dividends “icing on the cake” The bottom line of this article is that the main reason for early exercise of our covered call options is ex-dividend dates. This is a rare occurrence but when it does materialize, it will be on the day prior to the ex-date. This becomes a factor when we trade in non-sheltered accounts and the shares are of a low cost-basis as exercise may result in negative capital gains tax issues. Covered call writing streamlined approach: New book & spreadsheets My new book is being printed at the publisher after I gave final approval of the proof. Once we receive the 1st 500 author copies, I will be contacting premium members for a live Zoom introduction and early order discount offer. At a later date, the information will be available to the entire BCI community. Premium Member Benefits Video This is a great time to join our premium member community with its stock screening and educational (over 200 videos) benefits. We offer more benefits than ever before. For information, click here. For video explanation, click here. Your generous testimonials Over the years, the BCI community has been incredibly gracious by sending our BCI team email 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: Alan, I just ordered the TMC calculator! Really looking forward to learning and using it. Thank you for all your help, Alan. You do a great job educating people. Jim ______________________________ Upcoming events To request a private webinar for your investment club, hosted by Alan & Barry: info@thebluecollarinvestor.com 1.Mad Hedge Investor’s Summit Wednesday March 15th 11 AM ET – 12 PM ET Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks Increasing profits and avoiding tax issues Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”. Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy. Registration link to follow. 2.NYC & Long Island Stock Traders Investment Groups Thursday March 16th, 2023 7:30 – 9 PM ET Topic related to multiple applications of selling cash-secured puts. Specific time, date, topic & description and registration link to follow. 3. Money, Markets, & Monetary Policy Virtual Expo April 11th – 13th, 2023. Specific time, date, topic & description and registration link to follow. 4. Wealth365 Summit April 17th – 22nd Specific time, date, topic & description and registration link to follow. 5. Your Mid-Year Portfolio Review Virtual Expo June 27th – 29th, 2023 Specific time, date, topic & description and registration link to follow. 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[Privacy Policy/Disclosures]( [Review of Dividend Dates & Their Impact on Our Covered Call Trades]( The main reason for early exercise of our covered call writing options relates to corporate dividends. The key date to be aware of is the ex-dividend date. This article will clarify and define the dates related to corporate dividends and also discuss an anomaly related to special dividends. Early exercise of our covered call options Before definitions are presented, here is the main takeaway of this article: Shareholders are owed the dividend if they are determined to be shareholders on the record date. An investor would need to own shares on the date prior to the ex-date in order to be (or become) a shareholder of record on the record date (usually the following day). Since the exercise of a call option results in the purchase of shares on the exercise date, it is not uncommon to witness in-the-money call options being exercised on the day prior to the ex-date. Dividend date definitions 1. Declaration Date The declaration date is the day that the company declares that it will pay a dividend. With this declaration, the company announces how much it will pay, the ex-dividend date, and the payment date. The declaration date is sometimes called the “announcement date” and most reliable dividend-paying companies keep to a regular declaration schedule. 2. Ex-dividend Date As of the ex-dividend date, buyers of this stock will no longer be entitled to receive the declared dividend and the stock is said to thereafter trade “ex-dividend” (without dividend). In other words, shares must be owned prior to the ex-date. Before trading opens on the ex-dividend date, the exchange marks down the share price by the amount of the declared dividend. As an example, BCI, Inc. declares a $0.50 dividend with an ex-dividend date of November 10th. Anybody who buys the shares on the 7th, 8th, or 9th—or any date prior to the 10th—will receive that dividend. When the stock opens on the 10th, it will be adjusted down by $0.50 from the 9th’s closing price. Anybody who buys on the 10th or thereafter will not be entitled to receive that dividend. As long as a stock is purchased prior to the ex-dividend date, we can then sell the stock any time on or after the ex-dividend date and still receive the dividend. A common misconception is that investors need to hold the stock through the record date or pay date. Ex-dividend dates are, therefore, the most important date to consider whenever buying a dividend-paying stock. 3. Record Date The record date is simply the date where the company looks at its ledger and determines to whom they send the dividend checks (“the holders of record”). The record date is always the next business day after the ex-dividend date. This date is unimportant for dividend investors, since eligibility is determined solely by the ex-dividend date. 4. Payment Date The payment date (or “pay date”) is the date on which a company actually pays out its dividend. Generally speaking, this date falls about two weeks to one month after the ex-dividend date. Location of ex-dividend date data in our Premium Stock Reports BCI Premium Report Ex-Dividend Date Location Why do special 1-Time dividends sometimes have ex-dividend dates after the pay date? What are special dividends? Special dividends are extraordinary one-time dividends paid by a firm, often following quarters where profits are exceptionally high, or where a firm sells a division or otherwise raises a substantial amount of unneeded cash. Special dividends are a way of returning cash to investors directly, often in place of a share buyback. Why reverse pay date and ex-date? Firms sometimes do this so that the stock’s price is not unfairly compromised. In particular, if the special dividend is a large fraction of the overall share price, then if a stock is sold to a buyer after the ex-dividend date, but before the pay date, then the seller is entitled to the dividend, but has not received it. This means the seller is in the position of having to collect the dividend from the buyer in the future. For large special dividends, these issues can be avoided by having the payment occur before the ex-dividend date. Significance to dividend capture investors Having the payment date ahead of the ex-dividend date does not fundamentally change the economics of the dividend. The stock price is still adjusted on the payment date, and that means shareholders may be able to benefit from buying the stock ahead of the dividend, if the stock’s price does not fall by the same amount as the dividend. Investors need to be sure that they do not sell the stock until after the ex-dividend date. If they do, they might have to pay the dividend to the buyer of the security. The lesson for investors here is to pay careful attention to dates when trying to capture special one-time dividend payments. Discussion For covered call writing, dividends play a secondary role. There is nothing wrong with trying to capture a dividend along with our option premiums and potential share appreciation when using out-of-the-money call options. However, it should not be the main focus of our trades. I consider dividends “icing on the cake” The bottom line of this article is that the main reason for early exercise of our covered call options is ex-dividend dates. This is a rare occurrence but when it does materialize, it will be on the day prior to the ex-date. This becomes a factor when we trade in non-sheltered accounts and the shares are of a low cost-basis as exercise may result in negative capital gains tax issues. Covered call writing streamlined approach: New book & spreadsheets My new book is being printed at the publisher after I gave final approval of the proof. Once we receive the 1st 500 author copies, I will be contacting premium members for a live Zoom introduction and early order discount offer. At a later date, the information will be available to the entire BCI community. Premium Member Benefits Video This is a great time to join our premium member community with its stock screening and educational (over 200 videos) benefits. We offer more benefits than ever before. For information, click here. For video explanation, click here. Your generous testimonials Over the years, the BCI community has been incredibly gracious by sending our BCI team email 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: Alan, I just ordered the TMC calculator! Really looking forward to learning and using it. Thank you for all your help, Alan. You do a great job educating people. Jim ______________________________ Upcoming events To request a private webinar for your investment club, hosted by Alan & Barry: info@thebluecollarinvestor.com 1.Mad Hedge Investor’s Summit Wednesday March 15th 11 AM ET – 12 PM ET Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks Increasing profits and avoiding tax issues Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”. Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy. Registration link to follow. 2.NYC & Long Island Stock Traders Investment Groups Thursday March 16th, 2023 7:30 – 9 PM ET Topic related to multiple applications of selling cash-secured puts. Specific time, date, topic & description and registration link to follow. 3. Money, Markets, & Monetary Policy Virtual Expo April 11th – 13th, 2023. Specific time, date, topic & description and registration link to follow. 4. Wealth365 Summit April 17th – 22nd Specific time, date, topic & description and registration link to follow. 5. Your Mid-Year Portfolio Review Virtual Expo June 27th – 29th, 2023 Specific time, date, topic & description and registration link to follow. 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. **************************************************************************************************************** [Continue Reading...]( [Review of Dividend Dates & Their Impact on Our Covered Call Trades]( And, in case you missed it: - [HAPPY MAHASHIVRATRI TO ALL]( - [Factor Update, February 19, 2023]( - [Bitcoin Performance Versus Other Investments]( - [Money and Me: Winners and losers of latest S-REITs earnings season]( - [NFL : bilan semestriel du contrat de liquidité 2ème semestre 2022]( - FREE OR LOW COST INVESTING RESOURCES - [i]( [i]( [i]( [i]( Sponsored [This Could Become Your Favorite Stock In A Recession]( Financial experts are split on the recession. 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