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Example:

I own 200 shares xyz stock bought at $27.
It pays a 5% dividend if held until end of December.

I sell 2 Jan, 2013 call options of this same xyz stock at a strike of 30 for $2 ($200).

Now, lets say the stock rallies to $35 between now and Jan expiration of the option.

Questions:
- In January, I get the 5% divi for the 200 shares I own, am I responsible for any of the divi for the options sold?

- If the stock rallies above $30 before the Jan options expire, like in Dec, can they be called away prior to the option expiration date? Could they be called away in Dec resulting in me no longer being eligible to receive the divi?
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Hi jkens - Under no circumstances would you be responsible for paying out dividends as a result of holding a short, ITM call option. You would be responsible were you short the stock.

However, early assignment is a real risk. The only times I've ever had short calls exercised early were with dividend paying stocks. This has happened to me two times, once just a week prior to expiration, and the other time nearly a month prior to expiration - both times the exercise came just before the ex-dividend date so as to qualify for the dividend payment. So early exercise is a real risk to consider.

But I only sell calls in the hope that the option will get exercised. I try to sell calls on stocks that are at the low end of their price range in hopes of getting the commission plus a small gain for price appreciation.

Paul
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Thanks for the info.
It seems then that if I want the divi I would be better off just waiting till after the ex div date before selling any options on this one.
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You may want to research your specific option in more detail. If the dividend is high, sometimes the option price will get adjusted, though usually its a special cash dividend.

http://www.cboe.com/tradtool/contracts.aspx

For example, Buckle on November 26, 2012 announced a $4.50 dividend. Strike prices were adjusted.
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