Make a date with options

As advisers, you know dates are important. There's June 30, dates for quarterly income and business activity statements, appointments to review portfolios, conferences….... and for some advisers, key dates for options as well.  Whether it’s for personal use or to help a client that trades thru your firm's badged broking site, forgetting key dates is to be avoided at all costs. The goods news is that with a bit of planning and an automated calendar (with pop up reminders) keeping track of key dates will never be a problem. So what are the dates to remember and why their importance?

Expiry date:
For stock options this is the last Thursday in the month and for Index options the third Thursday unless ASX has moved the date forward as sometimes occurs due to public holidays and the like. Unlike stocks, options expire and by implication at some point either before or on expiry itself the option position needs to be
· closed ( the option, bought or sold )
· exercised ( the stock, bought or sold )
· left to expire, if out of the money.

So as a minimum make note of the expiry date, which appears on the contract note.

Last cum dividend date:
Call options are usually exercised on the day before the stock goes ex dividend when the call option is deep-in-the-money, with little chance of the stock falling below the strike price before expiry. This generally occurs where the dividend the investor would receive, if they were to exercise the call, is greater than the interest expense incurred in buying the shares which are the subject of the option ahead of the expiry date. Writers of call options who want to avoid assignment (being exercised against) may need to either buy back or roll that short call position to another strike in another expiry, being mindful again that the option they roll to is not also a candidate for early exercise.

If you or your client is trading options pencil in the last cum dividend date and the amount of the dividend. Companies generally pay dividends at the same time each year and declare (announce to the exchange) 7 business days before paying a dividend or distribution so the last cum dividend and ex dividend dates can be attained with certainty.
 
1. ex dividend date
the date after which the shares will not entitle buyers to the most recent divided.

2. record date:
the date specified by the company as the final date to identify shareholders on the company's register entitled to the dividend.

3. date payable
 the date of payment of the dividend

Ex dividend date:
When put options are deep-in-the-money they become candidates for early exercise.

By exercising early, the holder of the put sells their shares at the exercise price of the option and earns interest on the proceeds earlier than if they were to wait until expiry to exercise. This usually occurs after the stock has gone ex-dividend, so that the dividend is retained.

So by implication if you are long put options the ex div date is one to wait for and for writers of puts an important one as puts will be exercised on or after this day.

Add these dates to your diary:
When trading options committing these 3 key dates; expiry, last cum dividend date and the ex dividend date to your diary avoids potentially costly trading mistakes, ensures you don’t have to sit out the month when stocks go ex dividend and no longer need be concerned with the prospect of buying or selling stock or missing out on dividends. For more information see the Options homepage.