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If you sell a put against dividend stock, do you pay a dividend?

Recently, I got this question from a subscriber of mine.

“Do you have to pay a dividend if you sell a put option against the dividend paying stock?”

It is a good question and short answer to that is no, you do not pay the dividend.

You are obliged to pay the dividend (its substitution) only if you sell the stock itself short. A put option is a completely different instrument, which although corresponding to the underlying symbol doesn’t carry any rights or obligations of a stock. Thus only a stock will give you the right to receive the dividend if the company decided to pay one.

With options you only have the right or obligation to either sell or buy the underlying stock at expiration and at a given price.

And of course, it is the same with call option. When you buy a call option, you will not receive the dividend either.

Happy trading and if you have a question, don’t hesitate to ask!

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