I have a covered call position on a 3% dividend stock with some good momentum. The option expires in october. If the underlying reaches in the money, what are the chances there will be an early exercise before the call hits parity?
Jester 56 days ago
The only chance of early exercise from a call comes when there is an ex-dividend date. So check your calendar and see if the stock goes ex-dividend before your option expires. If there is, then there is a chance you could get caught up in a dividend play. You should consider closing out the short call on the day before the ex-dividend date.
However, going forward, you should always write covered calls in the front month. Writing covered calls beyond the front month doesn't maximize decay and leaves a lot of money on the table.