For in-the-money calls where the corresponding put still has some value, the rule used by most of the market is that if the value of the dividend is more than the value of the corresponding put plus interest, then the call should generally be exercised
for the dividend.
Writers of call options who want to avoid assignment (being exercised
against) may need to either buy back or roll that short call position to another strike in another expiry, being mindful again that the option they roll to is not also a candidate for early exercise.
National Australia Bank
Ex-Div 7th June 2004
Dividend 83 cents
Share Price $30.31 on last cum dividend date
1. June 2600 Call (deep-in-the-money)
• Corresponding put is worthless
• Interest = 6.4 cents (Strike Price $26.00 X Interest Rate 5.25%) / 365 days X 17 days till expiry
• 83 cents > 6.4 cents
Therefore the June 2600 call will generally be exercised
2. June 3000 Call (In-the-money)
• Corresponding put is 68 cents
• Interest = 7.3 cents
• 83 cents > 75.3
Therefore the June 3000 call will generally be exercised
3. June 3050 Call (In-the-money)
• Corresponding put is $1.09
• Interest = 7.5 cents
• 83 cents < $1.165
Therefore the June 3050 call will generally not be exercised
because the dividend isn't large enough.