🚨 Dividend Risk with ITM Call Options 🚨 Did you know holding an ITM call option could expose you to dividend risk? 🛑 This hidden risk can derail your strategies, especially with covered calls or call credit spreads. Here’s everything you need to know 🧵👇

1️⃣ What is Dividend Risk with ITM Calls? Dividend risk arises when you sell an ITM call option 💰, and the buyer exercises it early—typically just before a dividend is paid 📅💵. Why would they do this? If the dividend 💸 is greater than the option’s remaining extrinsic value, the buyer profits more by exercising early and collecting the dividend 🏦.

2️⃣ The Danger: Early Exercise When a buyer exercises early, you may face two outcomes: 1️⃣ If you own the stock, you’re forced to sell it, missing out on the dividend you would have received 💔. 2️⃣ If you don’t own the stock, you’re assigned 100 short shares 🔻, possibly forcing you to close the trade at a loss. Let’s explore how this plays out in real trades 👇

3️⃣ Example 1: Covered Calls Imagine this scenario: • You own 100 shares 📈 and sell a call option. • The call goes ITM 💰, and a dividend is approaching 💵. • Dividend payout = $1. • Extrinsic value of the ITM call = $0.75. The buyer gains $0.25 by exercising early ($1 dividend - $0.75 extrinsic value). Result: They exercise, you lose the stock and the dividend 😱.

4️⃣ Example 2: Call Credit Spreads Now consider a call credit spread: • You sell an ITM call 💼 and buy a further OTM call. • Stock price rises, making your short call ITM 🚀. • Dividend payout = $1.25 💵. • Extrinsic value of the short call = $0.70. The buyer can net $0.55 by exercising early. What happens? You’re assigned 100 short shares 😬, which could force you to close the trade at a loss 🔻. 💡 Pro Tip: If assigned, the buying power needed to hold the trade may spike dramatically 📉.

5️⃣ How to Avoid Dividend Risk • Check Ex-Dividend Dates 📅 – Stay informed. • Close Early 🛑 – Near the ex dividend date? Consider closing or rolling ITM calls to avoid early exercise. • Roll the Position 🔄 – Move the short call further out to reduce exercise risk before the dividend date.

6️⃣ Key Takeaway Dividend risk with ITM calls is no joke—it can wreck your plans if you’re not prepared. Whether it’s covered calls or call credit spreads, always keep an eye on the timing ⚠️💡.

💬 Have you ever faced dividend risk in your trades? Share your experience below 👇 Let’s discuss! If you found this helpful, don’t forget to like and retweet! 🔔 Follow me for more tips to elevate your options trading! 💡