Discussion in 'Options' started by muthiahmerchant, Jan 15, 2010.
What happens to the option price if a company anounces dividends.
In the option price model dividend is one the variables, so normally the dividend is prices in like the other factors. What you should look out for, is the days around the actual dividend payment, in this period you can have a high risk to get assignments even if there is a time value in the option. Many traders would like to have the stock to get the dividend for tax and other reasons.
If a company reports a new dividend it will be priced in, the dividend value means lower prices for CALL options and higher prices for PUT options
As explained by NHS, the dividend will be priced into the options. The exception to this is special dividends where they can adjust the strike price or add the dividend to the delivery requirement. I think the threshold is 10%. For examples, go to either the OCC web site (optionclearing.com) or the CBOE.com web sites.