Live: Thursday, June 20, 2019

11:55 a.m. New York time

The stock underlying my short iron condor on KRE goes ex-dividend on Friday, increasing the chances that the short options in my position might be assigned.

The short options are at greatest risk when they are out of the money and the dividend is greater than the remaining extrinsic value. Added to the picture: KRE is presently trading at 35% of maximum potential profit, making an early exit more attractive. My normal exit day for a profitable position is 21 days before expiration. In KRE’s case, that would be June 28, or a week from the ex-dividend date, a time short enough to lessen the attraction of holding on through ex-div.

Here’s the math.

The lowest quarterly dividend of the last four was $0.2419 and the highest, $0.3187, for an average of $0.2803.

My position has a short call with a $56 strike and an extrinsic value of $0.12, and a short put with a $48 strike and an extrinsic value of $0.39. The shares are presently trading at $51.75, so both strikes remain comfortably out of the money.

When the stock goes ex-dividend, we can expect the price to drop by the amount of the dividend. For caution, I’ll use the maximum of the last four quarters, rounded to 32 cents. That gives a decline to $51.43, leaving the options still within the money.

At this point I conclude that there’s a low risk of assignment. Both short options are out of the money and have extrinsic value greater than the estimated dividend.

A low risk, however, still has risk. Things change quickly in the markets, and what is now a low risk situation could become riskier. Or the position could be assigned for some other reason. At this point, I’m willing to take the risk. I’ll redo the calculations closer to the market close, and post here if I’ve changed my mind.

By Tim Bovee, Portland, Oregon, June 20, 2019


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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