Options ahead of Dividend

Discussion in 'Options' started by xyannix, Apr 9, 2008.

  1. xyannix


    Why would a stock like DAI have such heavy call volume ahead of their dividend announcement.

    What is the strategy they are trading?

    If you can link me to a good article on the subject that would also be fine.

    Thanks. :confused:
  2. Div arb.

    "Footprints of this activity are readily evident in large spikes in call volume observed immediately prior to ex dividend days on stocks that pay large dividends."

    See attached paper, its really long but its an easy skim.
  3. xyannix


    Thank You so much, just what the doctor ordered!!!
  4. Div arb call spreads have been going on since long before that paper was written. There is no new ground broken in that paper. I wonder why so much effort was made to create that paper so many years after that game has been around.

    The bottom line is that div arb call spreads are not applicable to the general retail public.

    The pool of unexercised options that should have been has grown smaller and smaller each year.
  5. Perhaps, but I thought it was valuable and it explained the concepts that I didn't understand.
  6. I was not knocking the way it went about showing what goes on I just wondered why they spent so much time on it. I didnt read all of, just the first few pages but its appears to be well written and informative.