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Ex-dividend Dates and How to Find Them

Ex-dividend Dates and How to Find Them

Key Points
  • Find out how to avoid the pitfalls of ex-dividend dates.

  • In particular, option strategies with short calls or short puts can have unexpected surprises.

  • Find out how to determine when you may get assigned early. 

For some traders, it seems that the ex-dividend date—the first day following a dividend declaration when a stock buyer is not entitled to the next dividend payment—is one of those things that just sort of sneaks up on you when you aren't paying attention.

If you regularly use any option strategy that involves short calls, you may have been frustrated by being assigned on the day right before the ex-dividend date. If you're a covered call writer, this means you'll not only unexpectedly lose your stock position, but also the next dividend payment. If you're an uncovered (naked) call seller, short straddle seller or a call spread trader, the consequences can be far more serious, because you'll not only have to cover a short stock position at a potential loss, but you'll also have to pay the dividend in cash to the stock holder of record on the payment date. If you regularly employ strategies that involve short call options and this hasn't happened to you, consider yourself fortunate.

In this article, I'm going to address how to:

  • Find the ex-dividend date.
  • Screen for stocks that are approaching an ex-dividend date.
  • Monitor ex-dividend dates in StreetSmart Edge®.
  • Determine when early assignment might occur, and how to reduce the likelihood.

Find the ex-dividend date

If you use strategies involving short calls, it's important to know whether the underlying stock pays dividends, and if so, when the ex-dividend dates occur. The easiest place to find the ex-dividend date is on the Summary tab of the Research>Stocks page of schwab.com.

How to find the ex-dividend date

How to find the ex-dividend date

Source: schwab.com.1 See disclosures below.

If you trade on StreetSmart Edge, you can jump to this page by selecting "Research" from the schwab.com menu at the top of your screen. In addition, if you've added a Schwab Equity Ratings® column to your Watch lists or Positions pages, you can click on the letter grade and the Research page will launch automatically.

How to find the ex-dividend date using StreetSmart Edge

 How to find the ex-dividend date using StreetSmart Edge

Source: StreetSmart Edge.1 See disclosures below.

Note: If the ex-dividend date listed on schwab.com has already passed (as in the example above) and the security pays dividends on a quarterly basis, you can add three months to the date shown as an approximation, until the exact date is announced by the company. Dates can sometimes vary due to weekends and holidays. Keep in mind that stocks are not required to pay dividends at all and can reduce or eliminate their dividend at any time, for any reason.

Screen for stocks approaching ex-dividend dates

If you plan to use a strategy that involves searching for stocks that are going ex-dividend within the next seven or 30 days and/or pay dividends that exceed a certain yield percentage, you can create a screener.

From the Overview tab of the Research>Stocks page of schwab.com (as shown below), select either "Find Stocks" or "Stock Screening" and then select the following Basic criteria:

  • "Dividend Yield" and pick your yield range(s)
  • "Upcoming Dividends" and pick your timeframe
  • "Optionability"
  • In addition, I recommend you check a large enough "Average Volume (10 Day)" of (perhaps 500,000 to one million shares), so you can avoid any illiquid stocks.

How to screen for stocks going ex-dividend

How to screen for stocks going ex-dividend

Source: schwab.com.

Once you've created this screener, be sure to "Save Screen" so you can quickly recall it. These screens can be accessed any time you login to your account on schwab.com.

How to monitor ex-dividend dates in StreetSmart Edge

In StreetSmart Edge, dividend information can be displayed directly on the chart. From the Chart tool, open the settings drawer and select "Dividends" from the Corporate Events section. Doing so will create small flags labeled with a "D" on the charts which identify the ex-dividend date. Historical ex-dividend dates will be represented by a down arrow while right arrows indicate upcoming ex-dates. If you mouse over the arrows, you can find out the dividend amount, the ex-dividend date and the payment date.

Note ex-dividend

In addition to the dividend flags, the Notes feature can be used for a variety of different purposes, including monitoring ex-dividend dates. Because ex-dividend dates don't change that frequently, you can include them in a note and then display that note in a watch list, on a chart, or in your account details window (as shown below). Once you've added the note, you can read it by clicking on it in any of these displays, and in some case, by simply hovering over it with your mouse.

StreetSmart Edge notes

Source: StreetSmart Edge.

Determine when early assignment might occur

As you probably already know, when a stock goes ex-dividend, for a normal quarterly dividend payment, the opening price of the stock is adjusted by the amount of the dividend on the morning of the ex-dividend date.

However, option prices are not adjusted for normal quarterly dividends. As a result, when you use strategies that involve short calls on stocks that pay dividends, the owner of the calls often has an economic incentive to exercise the call option. This usually occurs the day before the stock goes ex-dividend, if the call option is in the money and the amount of the dividend exceeds the remaining time value in the option. This incentive exists because the [strike] price he'll pay for the stock is the same before the ex-dividend date or after, but if he exercises before the ex-dividend date, he'll be the owner of record when the dividend is paid.

Let's look at some examples.

Covered call example

Assume you've previously written an April covered call with a strike price of 21 against your 100 share position of fictitious stock BYB. The stock has risen in price since you wrote the call, and it's now in the money by $0.96. According to the research page on schwab.com, the ex-dividend date is tomorrow and the covered call is still 10 days away from expiration. By comparing the amount of the dividend to the remaining time value on the option, (as circled in red below) you can see that the dividend is $0.10 greater than the remaining time value.

When an option is exercised, any remaining time value is lost. Because each option covers 100 shares of stock, the owner of these calls will pay $21 per share for the stock. He'll lose $16 on each call option he exercises, but gain $26 in dividends in about three weeks. If you take no action before market close, the likelihood of being assigned early is extremely high. (On the other hand, if the remaining time value exceeded $0.26, the likelihood of assignment would be extremely low).

Assess the likelihood of early assignment

 Assess the likelihood of early assignment

Source: StreetSmart Edge.

Most early assignments happen the day before the ex-dividend date. In the example above, you could retain your position in BYB and remain the owner of record when the dividend is paid by either buying back the covered call to close out your position, or entering a rollout by closing this covered call and simultaneously selling a new covered call for a later expiration date. Because the time value of a later expiration will likely far exceed the dividend amount, early assignment will almost certainly be avoided for now. Alternatively, you could do a roll-up by buying back this covered call and selling another covered call with a strike price that is out of the money.

Bull call spread example

Assume you don't own BYB shares but you have previously established a bull call (vertical) spread by buying 10 April 19 strike calls and selling 10 April 21 strike calls. As you expected, BYB has risen in price (to $21.96) and now both options are in the money. As with the covered call example above, because your short 21 strike calls are in the money by $0.96, but the dividend is $0.10 greater than the remaining time value, you anticipate early assignment tonight.

If you take no action before market close, tomorrow you'll be short 1,000 shares of BYB at a price of 21. Whether you choose to retain your short position or not, you'll be responsible for payment of the dividend ($260) on May 10. If you retain your short position, you have the added risk of being short a stock on which you were previously bullish.

To eliminate these risks before you get assigned, you could sell your 10 long 19 strike calls in the market and apply the proceeds to cover a portion of the cost of purchasing 1,000 shares of BYB. This 1,000 share purchase will then turn your short 21 strike calls into a covered call position. Doing so would eliminate the dividend payment obligation but because the stock will likely be called away tonight, you would not be the owner of record and would not receive the dividend on the payable date.

Alternatively, (as circled in green above), you could exercise your calls and purchase 1,000 shares of BYB because the bid price of the 19 calls is currently $0.02 below the intrinsic value (2.94 versus 2.96). Again, this effectively covers your short 21 strike calls. If you are assigned, you would eliminate the dividend payment obligation (just like if you purchased the stock outright). However, because the stock will likely be called away tonight, you would not be the owner of record and would not receive the dividend on payable date.

In this example, exercising the calls is probably the better of these two choices because you'll receive the full intrinsic value of the options (as opposed to $0.02 less) and you eliminate the commission charge of selling the options. You will, however, have to pay a commission to exercise your calls.

What you should know

  • If you use any option strategy involving short calls, such as covered calls, naked calls, call spreads or short straddles, when those calls go in the money and expiration is a few weeks out or less, early assignment usually occurs exactly one day before the ex-dividend date.
  • If you use any option strategy involving short puts, such as covered putsuncovered (naked) puts, CSEPs, put spreads or short straddles, when those puts go in the money and expiration is a few weeks out or less, early assignment usually occurs exactly on the ex-dividend date. This allows the put holder to remain the shareholder of record and receive the dividend on payable date.
  • Early assignment is less likely on index options or stocks that do not pay dividends, because there's rarely an economic benefit to the option holder.

Don't get caught off guard

As you can see, the ex-dividend date can take on enormous importance if you use strategies with short options. Be sure you watch out for ex-dividend dates so you won't encounter any surprises.

For additional information or for assistance with other options strategies, please contact a Schwab Trading Specialist at 800-435-9050.

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