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Assume a stock has an ex-dividend date that falls on a Monday. A covered call is sold Friday just before close. If the call is in the money would the option owner be able to exercise the call in time to claim the dividend? I'm assuming the settlement date would be Saturday for that transaction similar to a monthly option being exercised ITM?

I've seen it stated that the owner of the shares at the end of trading the day before the ex-dividend date gets the dividend.

I've also seen it stated that as long as you buy the shares before the ex-dividend date you will get the dividend.

The Friday afternoon to Monday morning gap seems to create a situation where those two statements may not always both be correct.

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The option owner can exercise the ITM call. Even if he doesn't, the OCC exercises all options that are one cent ITM at expiration unless the owner of the call desgnates through his broker that his long options not be exercised. This would make sense if the closing cost exceeded the ITM amount. This process is called Exercise By Exception.

The owner of the stock on Friday always gets the Monday dividend. It doesn't matter if the stock is purchased on the market or if it is acquired by exercise.

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  • Thanks for the quick answer. So, if notice is given the option will be exercised after the close on Friday, the date of record for that transaction will still be Friday? I should add, in this case I'm asking about someone possibly exercising the option early, not on the expiration date.
    – Keith
    Apr 18, 2020 at 3:05
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    Quick answer only because I showed up now :-). Assuming no existing position, ff the call is exercised early (before expiration), stock ownership has an earlier purchase date (or if no existing position, a short sell date if it's a put).
    – Bob Baerker
    Apr 18, 2020 at 3:11

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