PFE Div Factored in?

Discussion in 'Options' started by Arnie Guitar, Nov 3, 2005.

  1. Excuse my ignorance, but PFE goes ex div next week, and the Nov 20 call option was at $2.00, the stock was at $21.99, and the div is $.19.

    shouldn't the option be $2.19, not 2.00.

    Again, excuse me if this is stupid.
  2. All else equal, the stock falls $0.19 on ex-dividend, so if the option were European, it should trade at about $1.80 (assuming dividend is certain, and PFE vol is low). But since it's American, the assumption is that you will optimally exercise (ie the day before ex-div, or [edit] whatever ensures the dividend)
  3. But the stock usually doesn't fall by the dividend amount on the open market. that's all just theoretical pricing.

    either way, it's better to ask a question you feel is stupid rather than trading on an assumption that turns out to be wrong.
  4. Couldn't agree more.
  5. This is what I was saying, unlike def, in the other thread. It could be they specifically take away the regular premium as well. The net affect is an increased spread between bid and ask.