It is Options Expiration ... and ex-Dividend also!

by Wayne Ferbert on June 20th, 2013

The standard monthly options expire on Saturday for June – so your last chance to roll or close them is on Friday. However, for most of the largest ETFs that have options, they go ex-dividend tomorrow. So that means that the owner of record tonight will be the one that collects the dividend.
 
That is important if you have IN-THE-MONEY calls that you have sold against your ETF positions. And since we advocate selling calls against your ETFs to help to fund the cost of hedging, you likely have some ITM calls.
 
Why is it likely? Because we have also been advocating for selling Out-of-the-money calls about 3 to 6 months out to match the expirations of your laddered puts. Given the market run-up so far in 2013, if you sold calls 3 to 6 months ago, the market move probably caught up to your call strikes.
 
Look at all of the most popular ETFs that we advocate and you will find lots of them going ex-dividend tomorrow: SPY, MDY, SDY, and all of the SPDR Select Sector ETFs (eg, XLF, XLE, etc). You will want to make sure that you either close the in-the-money short call today – or roll it forward to another month at an OTM strike. And you need to make sure you do this before close of business today.
 
Unless … you want the underlying stock to be taken away from you. If you are ready to exit the stock and this is your exit, then let the call get assigned tonight. The owner of that call will take your shares in exchange for the strike price of the call  (assuming you own the shares and are not just naked the call).
 
A few other popular ETFs that we use will go ex-dividend in the next two weeks – but not before expiration tomorrow. These are EEM (June 27th), EFA (June 27th), and IWM (July 2nd). While you don’t have to deal with any short ITM calls on those ETFs by today, you will need to deal with them by the dates indicated.
 
Good luck and happy hedging.
 


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1 Comments

Bryan F - June 21st, 2013 at 12:35 PM
Implied Volatility will probably inherently rise through the Summer as the Fed yields its influence into the liquidity channel.....Great op for widening spreads and hedged positions.


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