What happens to a call option on the ex-dividend date?
If you buy a stock on or after its ex-dividend date you don't receive the next dividend, and with a significant dividend the stock's price may fall by that amount on that date 1. Call holders are not entitled to dividends, whenever they bought 2; so when a call is in the money and the dividend exceeds its remaining time value, its owner will likely exercise on the day before the ex-dividend date, and the call's seller is likely to be assigned then 2.
A $50 stock about to go ex-dividend, and a call at 30% implied volatility (made-up numbers). Move the strike, the dividend and the days left, and compare the call's time value with the dividend.
In numbers
By the formula, with 30 days left the $45 call costs $5.36: $5.00 intrinsic value and $0.36 time value 3. Against a $0.50 dividend, exercising the day before collects $0.14 a share more than the time value given up; against a $0.25 dividend, holding keeps more. With 10 days left the same call has $0.07 of time value 3, and a smaller dividend passes the test.
For the writer of a covered call
An early assignment the day before the ex-dividend date deprives a covered call's writer of the dividend 4: the shares leave before the ex-dividend date. Higher dividends tend to lower call prices and raise put prices 5.
What this shows, and what it doesn't
The formula's prices for a stock with no dividend in them 3, set against a dividend chosen by hand: the comparison a holder makes, not a rule that fits every contract. Assignment is possible before that day too 2, and a real quote carries a bid-ask spread 6.
Go further
Sources (6), checked 20 October 2026, 27 October 2026 and 28 October 2026
- US Securities and Exchange Commission, Investor.gov, “Ex-Dividend Dates”. Read it (read 20 October 2026)
- Fidelity, “How dividends can increase options assignment risk”. Read it (read 28 October 2026)
- Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities”, Journal of Political Economy 81(3), 637–654, 1973. Read it (read 20 October 2026)
- The Options Industry Council, “Covered Call (Buy/Write)”. Read it (read 27 October 2026)
- The Options Industry Council, “Put/Call Parity”. Read it (read 27 October 2026)
- US Securities and Exchange Commission, Investor.gov, “Types of Orders”. Read it (read 20 October 2026)
Now try it on a scenario of your own
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