Author Topic: Timing of buy, sell, and dividends  (Read 1948 times)

geekette

  • Handlebar Stache
  • *****
  • Posts: 1838
Timing of buy, sell, and dividends
« on: December 24, 2014, 09:25:29 AM »
DH has some options from his old company that we'll want to exercise in 2015 (and not a moment before).  Normally we just buy and do a same day sale, but I was thinking (dangerous).

They declared a dividend for owners of record on 1/2/15, payable later in January.  If we exercise on 1/2 would we be owners of record on that day?  Or do you not own until it settles 3 days later?  Could we even sell them in that awkward time between buying and the settlement date?

MDM

  • Walrus Stache
  • *******
  • Posts: 9307
Re: Timing of buy, sell, and dividends
« Reply #1 on: December 24, 2014, 04:50:37 PM »
Calling the brokerage handling the options seems the best course.  They may have specific procedures established - in any case, they would be the best ones to tell you what their 1099 forms will say.

Good luck!

FarmerPete

  • Bristles
  • ***
  • Posts: 346
Re: Timing of buy, sell, and dividends
« Reply #2 on: December 26, 2014, 09:37:31 AM »
Dividend distribution tend to be priced in to the price of a share.  In other words, if you bought a share of company Contigo for $100 a share the ex-dividend date, and the stock had a dividend of $1.  The stock would open up at $99 the next day.  It's not free money, otherwise people could just buy shares the day before and then sell them once they got the dividends and pocket large sums of money whenever they wanted.

TreeTired

  • Bristles
  • ***
  • Posts: 449
  • Age: 134
  • Location: North Carolina
  • I think we can make it
Re: Timing of buy, sell, and dividends
« Reply #3 on: December 26, 2014, 10:32:21 AM »
dividend timing is very important to the value of call options - especially in the money call options.  If you hold the option through the ex dividend date you basically lose the value of the dividend.  So unlike buying stock outright (you either get the dividend or pay a lower price and don't get the dividend)   you can actually lose money by selling call options later rather than sooner.

TreeTired

  • Bristles
  • ***
  • Posts: 449
  • Age: 134
  • Location: North Carolina
  • I think we can make it
Re: Timing of buy, sell, and dividends
« Reply #4 on: December 26, 2014, 11:30:06 AM »

They declared a dividend for owners of record on 1/2/15, payable later in January.  If we exercise on 1/2 would we be owners of record on that day?  Or do you not own until it settles 3 days later?  Could we even sell them in that awkward time between buying and the settlement date?

In your specific case,  with the record date Jan 2,  the ex-dividend date should be Dec 30, 2014,  so even if you sold on Dec 30 you would not get the dividend.   Exercising Jan 2 you will not get the dividend,  if exercising on that date is a trade which settles Jan 7,  but confirm the trade settlement date first.   

http://www.nasdaq.com/dividend-stocks/dividend-calendar.aspx?date=2014-Dec-30
« Last Edit: December 26, 2014, 11:32:22 AM by TreeTired »

FarmerPete

  • Bristles
  • ***
  • Posts: 346
Re: Timing of buy, sell, and dividends
« Reply #5 on: December 26, 2014, 11:43:02 AM »
Sorry, I wasn't thinking about it from an option standpoint.