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Early Assignment

I was just notified by my broker of early assignment.

music selection:  “Dissident” — Pearl Jam

I had 11 contracts of a PSEC call open.  Four of them have been called away early.  This is something that happens from time to time when you sell options for income.  It doesn’t make a lot of sense.  Whoever holds my other seven contracts wisely saw the time value remaining on the options is more than collecting the dividend.  The counterparty who called my shares away would have made more money by selling his calls instead of opting for early assignment.

For me, this is a tiny windfall.  I collect the remaining time value on the contracts early.  And it is more than I would have collected from the dividend when it arrives.  I’ll be taking the money and running.

Devour your prey raptors!

{ 5 comments… add one }
  • 10 February 23, 2017, 10:11 pm

    Nice stuff! Keep devouring away.

  • Chris B February 27, 2017, 4:37 pm

    Maybe it was a combo move. Assign the underlying, collect the dividend, and then roll the call or sell. But why would this make more sense than just buying the underlying and doing the same? IDK. Maybe something to do with a wide bid-ask spread at that moment.

    I am, however, intrigued that some stocks do not reliably fall on their ex div date by market movement (beta) minus their dividend amount. This would seem to be an arbitrage opportunity if your transaction costs were low enough. If you could identify a half-dozen or more different payment dates in a month, it seems like you could trade in and out, collecting more dividends than you’d lose from their average change in value pre/post dividend. I’d have to win a few rounds of that game in a paper account before believing it though. One, it’s a simple algorithm. Two, it violates efficient markets theory. Still, it might be a sensible strategy to reduce time-in-market if you anticipated a bear market, or periodic Trumptastrophies. It might also be a safer way to extract dividends from declining MLPs like BPT.

    • The Lizard King February 27, 2017, 5:04 pm

      My medical doctor told me he has great success doing dividend capture trades. Apparently it can be done no matter what the EMH says.

  • jrbroker March 1, 2017, 7:15 pm

    Raptor,

    do you still hold MORL ?? I remember you once told your position was @10% of your total portfolio…

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