Q: Hello 5i,
I hold POU with 1/2 of the position covered called to June 2025 at a 14% higher strike. My question is the $12 Special Distribution Return of Capital & $3 Lump Sum dividend that was announced Dec 18/2024 priced into the stock? Another way to ask the question is will the stock price drop if $12 of return of capital occurs & $3 in dividends or should I try to buyback the covered call before it becomes ITM? I have no issues holding the stock longer term and would like to take advantage of the special distribution if possible.
I hold POU with 1/2 of the position covered called to June 2025 at a 14% higher strike. My question is the $12 Special Distribution Return of Capital & $3 Lump Sum dividend that was announced Dec 18/2024 priced into the stock? Another way to ask the question is will the stock price drop if $12 of return of capital occurs & $3 in dividends or should I try to buyback the covered call before it becomes ITM? I have no issues holding the stock longer term and would like to take advantage of the special distribution if possible.
5i Research Answer:
After its asset sale, the company did note it would be paying a special dividend. The amount is higher than expected, we think, but the fact that the stock did not move at all on the announcement implies it was priced in. Note that usually options prices are adjusted for such special dividends. The exchange will make a decision on this. We would take a look at the open interest on the option. We imagine it is quite low. Typically, investors like to exercise options early to get big dividends, so we would lean towards re-buying the option. The special dividend is conditional upon the asset sale closing, expected in the first quarter of 2025.