252 Part Ill: Put Option Strategies 
Dividend payment dates may also have an effect on the frequency of assign­
ment. For call options, the writer might expect to receive an assignment on the day 
the stock goes ex-dividend. The holder of the call is able to collect the dividend by 
so exercising. Things are slightly different for the writer of puts. He might expect 
to receive an assignment on the day after the ex-dividend date of the underlying 
stock. Since the writer of the put is obligated to buy stock, it is unlikely that any­
one would put the stock to him until after the dividend has been paid. In any case, 
the writer of the put can use a relatively simple gauge to anticipate assignment near 
the ex-dividend date. If the time value premium of an in-the-money put is less than 
the amount of the dividend to be paid, the writer may often anticipate that he will 
be assigned immediately after the ex-dividend of the stock. An example will show 
why this is true. 
Example: XYZ is at 45 and it will pay a $.50 dividend. Furthermore, the XYZ July 50 
put is selling at 5¼. Note that the time value premium of the July 50 put is ¼ point 
- less than the amount of the dividend, which is ½ point. An arbitrageur could take 
the following actions: 
1. Buy XYZ at 45. 
2. Buy the July 50 put at 5¼. 
3. Collect the ½-point dividend (he must hold the stock until the ex-date to collect 
the dividend). 
4. Exercise his put to sell XYZ at 50 ( writer would receive assignment on the day 
after the ex-date). 
The arbitrageur makes 5 points on the stock trades, buying XYZ at 45 and selling it 
at 50 via exercise of the put. He also collects the ½-point dividend, making his total 
intake equal to 5½ points. He loses the 5¼ points that he paid for the put but still 
has a net profit of ¼ point. Thus, as the ex-dividend date of a stock approaches, the 
time value premium of all in-the-money puts on that stock will tend to equal or exceed 
the amount of the dividend payment. 
This is quite different from the call option. It was shown in Chapter 1 that the 
call writer only needs to observe whether the call was trading at or below parity, 
regardless of the amount of the dividend, as the ex-dividend date approaches. The 
put writer must determine if the time value premium of the put exceeds the amount 
of the dividend to be paid. If it does, there is a much smaller chance of assignment 
because of the dividend. In any case, the put writer can anticipate the assignment if 
he carefully monitors his position.