Options and Dividends: Understanding Early Exercise and Ex-D
@Bulltrader:
People who trade options do so for a number of reasons: to target downside protection, to potentially enhance income from stocks they own, or to seek capital-efficient directional exposure, to name a few. But one common element shared by all option traders is exposure to risk.Consider dividend risk. If you trade options on stocks that pay cash dividends, you need to understand how dividends affect options prices, options exercise and assignment, and other factors in the life cycle of an option.To make a long story short: Failure to understand dividend risk could derail your strategy and cost you money.How Do Cash Dividends Work?Dividends, stock splits, mergers, acquisitions, and spin-offs are examples of corporate actions—things done by a company that require adjustments to the number