Assignment on ex-dividend day
The day before a stock goes ex-dividend is the one time early assignment stops being theoretical. Exercising a call converts it into shares and destroys its remaining time value, so a holder does it when the dividend is worth more than that time value. Assigned the day before, you lose the shares and the dividend together.
This is the most predictable event in options, and it is predictable from two numbers you can read off a screen in ten seconds.
The comparison
KO is $77.90 and goes ex-dividend for $0.51. You are short the $75 call, nine days from expiry, trading at $3.10.
- Intrinsic value: $77.90 less $75.00 is $2.90.
- Time value: $3.10 less $2.90 is $0.20.
- The dividend: $0.51.
The holder gives up $0.20 to collect $0.51. Exercising is worth 31 cents a share to them, so expect to be assigned, and expect it before the ex-date rather than at expiry.
Reverse the numbers and the answer reverses. A call with $0.90 of time value against a $0.51 dividend is not worth exercising, and you keep both the shares and the payout.
Which strikes it reaches
Time value is not the same across the chain, so neither is the risk.
| Strike | 21 days | 9 days | 4 days | 1 day |
|---|---|---|---|---|
| $70 | $0.18 | $0.07 | $0.03 | $0.01 |
| $72.50 | $0.27 | $0.08 | $0.03 | $0.01 |
| $75 | $0.59 | $0.20 | $0.06 | $0.01 |
| $77.50 | $1.40 | $0.83 | $0.49 | $0.17 |
At 21 days only the two deep strikes are under the dividend. At nine days the $75 has joined them. At four days the $77.50 is on the line at $0.49, and by the final day every in-the-money call on the board is a giveaway.
The boundary walks up the chain as expiry approaches. That is the shape worth carrying around: risk is not a property of your strike, it is a property of your strike and the calendar, and it changes daily.
Out-of-the-money calls are absent from the table on purpose. They have no intrinsic value to convert, so exercising them is irrational at any dividend, which is why the ordinary out-of-the-money covered call on a dividend payer is largely fine.
The put side, which nobody mentions
OCC / Options Industry Council, Options Assignment FAQ notes that assignment risk rises just before the ex-dividend date for short calls and just after it for short puts.
The reason is mechanical. On the ex-date the stock drops by roughly the dividend, so every put gets deeper in the money overnight and loses time value with it. A put holder who was carrying the contract for its optionality now has a deep, nearly all-intrinsic option and a reason to exercise it, which is that exercising pays them cash they can earn interest on.
If you are running the wheel on a dividend payer, that is a date to have in your calendar rather than a surprise.
What it costs you
Assigned the day before ex-div, you lose the shares and the dividend at once. On 200 shares of KO that is $102 of dividend you had already counted on, plus whatever the call cost you in capped upside.
The defence is not complicated. Look up the ex-dividend date before you write anything on a payer. Then, in the few days before it, check your short call's time value. If it has fallen below the dividend and you want to keep the shares, buy the call back before the close the day before the ex-date. After that close it is out of your hands.
The tax trap underneath it
Collecting the dividend is not the same as collecting a qualified dividend at the lower rate.
IRS Publication 550, Investment Income and Expenses requires holding the shares more than 60 days in the 121-day window that starts 60 days before the ex-dividend date, and an in-the-money covered call that fails the qualified covered call test suspends that holding period. At-the-money and out-of-the-money qualified covered calls do not.
On a large income position the difference between qualified and ordinary treatment can exceed every dollar of premium the call paid you. The rules have real specificity about strike distance and time to expiry, this page is not tax advice, and writing in-the-money calls on dividend payers is a genuinely good reason to involve an accountant.
The usual caveat
OCC / Options Industry Council, Options Exercise FAQ still applies. The arithmetic tells you what a rational holder does and the allocation is a random draw, so you can be assigned when the numbers say you should not be, and skipped when they say you should. Treat the comparison as odds, not as a schedule.
OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.
Questions people actually ask
Will I be assigned before an ex-dividend date?
It becomes likely when your short call is in the money and its remaining time value is less than the dividend. On the worked example, $0.20 of time value against a $0.51 dividend made exercise worth 31 cents a share to the holder.
Do I still get the dividend if I sold a covered call?
Yes, as long as you still own the shares on the ex-dividend date. Selling a call does not give up the dividend. Being assigned the day before does, and you lose the shares in the same stroke.
Are out-of-the-money covered calls at risk around a dividend?
Almost never. An out-of-the-money call has no intrinsic value to convert, so exercising it early would hand the holder a loss no dividend covers.
Can a covered call cost me the lower dividend tax rate?
It can. An in-the-money call that fails the qualified covered call test suspends the holding period that qualified dividend treatment depends on, which can cost more than the premium. Out-of-the-money writes generally do not. See IRS Publication 550 and ask a tax professional.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Assignment and expiration for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.