Sorry -- I'll give you a chance to criticize one of mine...
A covered call on MMM.
MMM is at $84.68. The May $85 call has a bid price of $0.96. It goes ex-dividend on 5/19 with a dividend of $0.525.
If the stock does run up above $85 by Wednesday, you may get exercised early so the contract holder doesn't lose the value of the dividend. However, if they do exercise early, you get to keep the $0.96 call premium over a shorter time period (plus the $0.32 gain on the stock to that strike price).
In such a case, I like to make sure the extrinsic value of the call is larger than the dividend amount.
On Sun, May 16, 2010 at 8:26 PM, Louis <loupi3@yahoo.
Randy, you are brutal :-).
You're right to the extent that perhaps I should have chosen a stock that was a "good example."
But I think I was clear in saying at the very beginning that I chose AXP only because I was looking at it that particular moment, solely for convenience, and that my question was not whether AXP was a good choice, but whether the principle I was considering had fatal flaws.
This exchange has helped me to think it out a bit more, but the AXP post was not relevant to the original question.
Lou
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