At one point, when they are still paying dividends and have that cash on hand, they would trade below bookvalue/liqidation value... someone will buy that shit... The IV is interesting. Google Altana special dividend. IB took at big hit through Timberhill on that. Petterfy even wrote a letter complaining about it. In short, Altana paid a huge special dividend because that had lots of cash on hand through the sale of a division. Something like 65% of their value... IV's where trading really low, since cash doesn't move. So after dividend, IV's are back up at normal or even above right? So IV's traded higher and higher going towards ex-div date. And there were massive errors made by traders on how the stock and options would be priced after the corporate action. Big short squeeze after dividend as well...
All right, alternative scenario - really long trade, fixed divs (say 10y). Do you price the forward from the current div? then it will go negative. Do you price the forward based on div yield? in that case, you are having a serious fwd divergence based on terminal spot. Just saying
I never traded 10yr out... but that far out will screw things up indeed I think. Interesting.... Eventually, I think the calls will be priced on current spot... (assuming American). Since at a zero forward, long term calls are at least the value of the short term calls... Puts are a different matter. Are we talking zere interest rates as well? Because future dividends are discounted as well aren't they? So there will be a diminishing effect. This goes beyond me a bit, but I do know that theoretical models aren't worth much anymore in the extremes...
Because they do, that is how the dividend amount is included in the price. Watch ETR tomorrow, 87 cents dividend after today's close. Closed at 71.67, should open below 71.... We don't but if it does, that is a good direction for my vertical spread. They could also bounce back, there are no rules for the behaviour...
Okay, but that drop is because of the corporate action, which is already priced in options pricing... your call spread is priced on 74.67-0.87=73.80... Check it out, what CS is it? What delta does it have? If it's an OTM it will change by delta x move from 73.80
The idea behind the strategy isn't mispriced options, but a bet on the stock not moving back to its previous level, or at least not very soon.
Finally I have found a good candidate, XOM. They pay 75 cents after the close today, the stock is at 83 right now and it has a good chain. Selling the weekly vertical 83/83.5 expiring in 3 days gives 13 cents. So the question is, will Exxon recover the 75 cents drop in 3 days?