What will be Impact of Dividend on Derivatives Positions?

What will be Impact of Dividend on Derivatives Positions?

Cash dividends affect F&O contracts because they influence the price of the underlying stock, which typically drops by the dividend amount on the ex-dividend date.
1. When is an adjustment made?

 • If the dividend is less than 2% of the stock’s market price → It’s treated as a normal dividend.
 No adjustment is made to strike prices or futures contracts.

 • If the dividend is equal to or more than 2% of the stock’s market price → It’s considered an extraordinary dividend.
 Strike prices and futures prices are adjusted accordingly.
2. Example of Adjustment:

 Scenario:
 • XYZ stock trading at ₹500.
 • The company declares an extraordinary dividend of ₹20.

 Futures:
 • You bought a future at ₹490 before record date.
 • On the ex-dividend date, the price adjusts by the dividend amount:
 ➤ New average buy price = ₹490 - ₹20 = ₹470
 ➤ New market price = ₹500 - ₹20 = ₹480

 Options:
 • You hold a Call Option with a ₹500 strike price, premium ₹10.
 • Post ex-dividend date:
 ➤ New strike price = ₹500 - ₹20 = ₹480
 ➤Premium remains the same at ₹10.


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