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Ex-dividend date

The cutoff for owning a stock to receive its next dividend — a key date for early-assignment risk on in-the-money short calls.

The ex-dividend date is the first day a stock trades without the right to its upcoming dividend. Buy the shares on or after that day and the dividend goes to the previous owner instead. Because that cash is about to leave the company, the stock typically opens lower by roughly the dividend amount on the ex-date. For anyone trading options this matters, because option prices are built on the stock price, and that expected drop is already baked into what you pay.

In practice the ex-date is when American-style call options face early assignment risk. If a call is deep in the money and its remaining extrinsic value is smaller than the dividend, a rational holder will exercise the day before ex-date to capture the payout. So if you are short that call, you can wake up assigned, long the dividend obligation instead of the position you expected.

A quick example: a $50 stock pays a $1 dividend. You are short a $40 call with only $0.30 of time value left. The night before the ex-date, the counterparty exercises to grab the $1, and your shares get called away. The common mistake is ignoring upcoming ex-dates on short in-the-money calls; check the dividend calendar before it surprises you.

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