When are dividends ignored as far as call option are concerned? I understand that the holder of a call option normally takes the hit on a dividend ex-date. EXAMPLE MA announced a stock dividend (not a stock split) and MA is issuing nine additional shares for every one share held. If I hold one $800 call option the day before the dividend, what do I own the day after the dividend? Do I still have a call on 100 shares at $800, meaning the call is worthless, and therefore I must sell it or exercise it the day before ex-dividend? Assuming the above is true, that the holder of the call loses 100% of his investment. What about buying a $750 put? The day after ex-dividend does this allow the holder to force someone to pay $750 for 100 shares of MA that will be trading for only about $80? Or is there an exception to the rule, and in a case like this, will one call option be for 1,000 shares the day after?
I found my answer. Regular quarterly CASH dividends under 10% of FMV as well as CASH dividends that are less than $12.50 - are generally ignored. STOCK dividends on the other hand result in the OCC making an adjustment to the terms of the underlying option. http://www.cboe.com/learncenter/pdf/understanding.pdf