If I am short an in the money call, and a dividend is coming up, then should I just close it out at a loss to avoid early assignment? Or should I wait and see if I actually get early assigned?
What are the odds of early assignment for a deep in the money call when a dividend is coming up?
Pending dividends affect time premium (puts increase, calls decrease). If an ITM call is near expiration and the dividend is large, the call may have no time premium whatsoever. It may even trade below intrinsic value.
If you are short an ITM call with a pending dividend, you are likely to be assigned early if there is no time premium remaining, more so if the bid price of the call is less than the intrinsic value. If the call has remaining time premium, early assignment is not likely unless someone fat fingers a bad trade and your name comes up on the OCC "Wheel" which is used to determine who is assigned. That's free money since you can immediately reestablish the position synthetically, assuming no significant change in the underlying's price. Yep, I might be getting too deep into the intricacies of options with that :->)
You should STC the call if assignment is going to create problems for you due to insufficient margin in your account. If that's not a problem then you should consider doing nothing if you think that the stock is going to reverse via which you will recover premium.
You can't put a number on the odds of early assignment of the call other to repeat what I said above. If the bid of an ITM option is below intrinsic value, early assignment is likely. For a put, if the time premium of an ITM put is less than the dividend, it's also likely that a short put will be assigned early.
