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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?
