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IWM call exdividend process

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6 replies, 3 voices Last updated by D G 5 years, 4 months ago
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    • #3013

      D G
      Participant
      @thetaeater@gmail.com
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      Thanks John.

    • #3000

      John Locke
      Keymaster
      @john-locke
      Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

      Correct.

       

      Typically it doesn’t affect extrinsic very much since the dividend itself has no real market pressure or directional impact.

       

      John

       

    • #2937

      D G
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      Thanks John…I see what you mean, in other words, since the ETF itself (IWM) will drop in price by the amount of dividend, once it goes ex-dividend, the ITM call will loose extrinsic value too.

    • #2930

      John Locke
      Keymaster
      @john-locke
      Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

      When a dividend is payed, the price of IWM drops by the payout of the dividend and an ITM call will lose intrinsic value accordingly. The loss typically doesn’t have a major effect on the trade but if you happen to hit an abnormally large dividend during a particularly challenging trade it may result in a loss where a “normal” m3 would have been ok.

    • #2926

      D G
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      Sorry, I know its old topic, but it seems like Kurt is planning to but DITM calls, if you are buyer of the call, there should be no dividend risk. Only time one has dividend risk is when you sold a call (selling a put also has no dividend risk)….what am I missing John/Kurt?

    • #2194

      John Locke
      Keymaster
      @john-locke
      Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

      Generally I consider trading that size as practice and I used to just take the hit and let the trade absorb it. Usually the dividend is 0.20 to 0.30 however it can be more, I’ve seen it as high as 0.7.

      If you just sell the call you are taking the overnight directional risk which may be problematic. An option is to trade an M3U instead. Or you can switch to an M3U for the overnight and then switch back again after the dividend however with the execution costs your usually better off to just leave it alone.

    • #2190

      Kurt K
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      @fxmankk@gmail.com
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      I’m planning to start trading a small M3 position with DIM IWM calls. How should I handle the exdividend record date? It seems that I need to close those calls on the record date and reopen them the next day? Is there a better approach?

      thanks!

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