Off topic, but there are some good minds that frequent this board. This was all done in my Etrade account. I was holding Las Vegas Sands (LVS), and sold a call option against the shares....the call was 12/22/12 $40. LVS has been trading above $40 for a while. Back in November, LVS declared a special dividend, payable on 12/18, due to the expected tax changes in 2013. So, I was paid $275 instead of the normal $25 on 12/18...an extra $250.00. On the same day, my call option gets exercised, a few days early from expiration...and it was exercised at $37.50 instead of $40, which really ticked me off. So, its possible the extra $250 was some sort of capital gain distribution, and some complicated legal accounting would reduce the price of the shares, and change the strike on the call option? But from the news releases, it seems the extra dividend was just that, a dividend. My guess is that the holder of the call option meant to exercise it early to grab that dividend, and missed it by one day. So someone (Etrade or someone else) did some creative illegal accounting, and changed the strike price of my option from $40 to $37.5. Anyone have any theories/ideas about this?? I'll call Etrade and LVS and try to find out how this happened. P.S. If Etrade screwed up and was a day late exercising the option, they should get stuck with the $250 loss, not pass it on to me.
P.S. For those who buy dividend stocks and write covered calls for income, exercising those options early to grab the last dividend has become strandard practice now. I'd reccommend selling options which are due 2 to 1/2 months past the last expected dividend date. Anyways, expect this practice to knock down your yield about 5%....instead of around 15%, expect to get about 10% return if someone takes your last dividend payment.
"...LVS declared a special dividend,"Options Clear Corporation (OCC) I believe has the final say on whether "special" dividends should get factored into the option strike price. there is no fixed rule as far as I know such as "if the special divy is >X% of share price". When a special dividend is announced, there should be a notice on the option exchanges website or through the OCC about how the special will be treated.So in this case, it sounds like it did get adjusted into the option but I don't think it has nothing to do with the regulatory status of the dividend, it has to do with "fairness" as judged by the OCC.This is my best understanding of the issue, but I rarely transact in options, so apologize if this is not correct.Ben
Black, A friend (in a different stock and option) got caught by the same rules that apply to how special dividends cause options to be re-priced. It's an obscurity that one needs to be aware of before the position is put on. Charlie
thanx for the quick responses, read them before I called etrade and dumped abuse/allegations and idle threats of moving my account on whomeever happened to answer the phone.
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