DIVIDEND RISK AFFECTS SHORT CALLS
If your portfolio contains any short call options, then there is a chance that you may be forced to sell 100 shares (per contract) of the underlying and pay the dividend on the payable date. As a result, your account will be short the stock and owe the upcoming dividend. However, if you are long the stock and your shares are called away then you lose the dividend payment.
Why can’t I find an upcoming ETF dividend amount?
ETF COMPOSITION MAY CHANGE, RESULTING IN VARYING DIVIDEND AMOUNTS
Since ETFs are a basket of stocks wrapped in a single share that tracks an index or sector, such as following the S&P 500 (SPY) or technology sector (XLK), the composition or weighting of the ETF to specific underlyings may have changed since the last dividend payment. As a result, the dividend amount cannot be accurately determined. You may refer to the last dividend paid in quote details inside the right-hand side bar of the trading platform. Or, you may view prior dividend payments by visiting the investment company’s website to get a rough idea, but it may not be consistent.
Widely-traded ETF investment companies:
- SPDR (namely DIA, SPY, XLF, XLK, XLU, etc.)
- Invesco (namely QQQ)
- iShares (namely EEM, IWM, TLT, etc.)
Dividend Risk Example
LOW DIVIDEND RISK VS. HIGH DIVIDEND RISK
Now, let’s look at two examples concerning a real-life symbol – MCD (McDonald’s Corporation). The first is a naked call position that presents potential dividend risk and the second is another naked call position that presents little to no dividend risk. BOTH screenshots were taken at the SAME time on Wednesday, May 31, 2017, with MCD going ex-dividend on Thursday, June 1, 2017 (next day).
- Price: $151.00
- Dividend amount: $0.94/share
- Ex-Dividend Date: Thursday, June 1, 2017 – the date when MCD trades without a dividend.