Stock Dividends

For updated information on SPY, IVV, and VOO dividends see this post.

Some dividend related info:

  • Excluding market action, Stock/ETF prices will drop by about the dividend amount when opening on their ex-dividend date.   The equity no longer carries the value of the dividend, so it drops in value.  The 500 stocks comprising the S&P index don’t go ex-dividend en-mass on the 17th, so the index itself does not show this effect.
  • If you’re short a stock when it goes ex-dividend you are on the hook to pay the dividend
  • If you are short options on a stock when it goes ex-dividend you do not pay the dividend
  • You don’t have to hold your stock until the record date to qualify for the dividend. You can sell your stock on the ex-dividend date and still qualify.  However, on record date you do need to have sufficient funds in your cash account or an appropriately funded margin account to avoid a possible free riding violation.
  • If you are short in-the-money (ITM) call options on SPY when it goes ex-dividend, your options will probably be exercised and your shares called away (or a short position created in your account if you don’t have sufficient shares in your account).   The threshold for exercise is an option premium of about 50% of the dividend amount, so approximately $0.35 per share this week on Thursday evening.   This reality short circuits many dividend capture schemes that hope to hedge the stock price with short deep in-the-money calls.  See here if you are interested in various dividend capture schemes.
  • The market price to sell call options (bid implied volatility) on ITM calls will be depressed this week until the ex-dividend date,  Puts will have inflated ask prices—the option market makers are blocking any free lunch opportunities.

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