Key insights
- The post discusses the price action surrounding ex-dividend dates for high dividend stocks, noting the typical price decrease equivalent to the dividend amount. It highlights potential surprises for investors, including unexpected stock drops, early exercise of short calls, and options repricing. While relevant to individual stock strategies, the overall impact on the broader US equity market is limited.
I am starting to do long term value investing and have some high dividend stocks in my portfolio.
Just today’s I caught wind of some of the craziness surrounding the ex dividend date. I’d like to hear from other Redditors with experience investing in high dividend stocks, especially if combined with option strategies.
Apparently right when the ex dividend date is crossed, the value of the stock typically decreases according to the amount of money that will be distributed to people who owned stock at that time. This is based on the assumption that the value of the company essentially decreases by the amount of money it distributes to investors.
This comes along with many surprises to the uninitiated:
- The shock of seeing your stock tank (but brokers typically show less intraday loss to compensate for the dividend). This effect could create momentum which causes the stock to fall even further. 2. Investors might exercise your short call earlier than expected if you do a covered call which is ITM, especially if the stock is on a bull run and the ex dividend date is approaching. 3. Options get repriced according to the amount of adjustment expected on ex dividend date.
Another learning experience for me! Gotta be aware of what happens on earnings dates as well as ex dividend dates.
Anyone with high dividend stock experience care to share insights here?