Post #17705 by Mark on the Berkshire Hathaway board

Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)

Unthreaded | Threaded | Whole Thread (23)

Post New | Post Reply | Report Post | Recommend It!

No. of Recommendations: 0

In case anyone is interested, deep in the money call options on dividend paying stocks don't get a dividend but are still assessed dividend withholding tax for ex-US persons.

I am having a difficult time understanding this. Not the mechanism, nor the logic of it.

Let's say a stock is trading at $30, and you own $20 call options (DITM) on that stock. Option is trading at $12 ($10 intrinsic value + $2 time value).
One day the company decides to start issuing a dividend of $1.
Time passes. Stock still at $30, and those options are now trading at $11 ($10 intrinsic + $1 time).
On the ex-div day, the stock distributes $1 for each share and the shares adjust down to $29 each.
Now the option is trading at $10 ($9 intrinsic + $1 time).

Are you somehow taxed on the $1 dividend that you didn't receive?

Post New | Post Reply | Report Post | Recommend It!

Print the post

Unthreaded | Threaded | Whole Thread (23)

Prev | Next

Announcements

Berkshire Hathaway FAQ

Contact Shrewd'm
Contact the developer of these message boards.

A community forum supporting civilized, and highly helpful, self-educating investors that come together for Shrewdness and merry spirits. These message boards closely follow the look and feel of the old message boards at boards.fool.com prior to the boards redirected to discussion.fool.com. Shrewd'm is not affiliated with the comprehensive and excellent investment website, The Motley Fool (TMF), in any way. The Shrewd commmunity here has owed, and continues to owe, gratitude to The Motley Fool for nurturing a culture of jovial irreverence towards Wall St, and that tradition will continue here.