In case of, for example, a $3 cash dividend, the stock would go down $3.00.
And any long options, such as a February $17 call on Yahoo, the strike price would go down to become a February $14 call.
If you have 1000 shares at $16.00 a $3 cash dividend gives you 1000 shares at $13.00.
If you have 10 February $16 call options, the dividend would give you 10 February $13 calls.
If I get $3 in my account and my stock goes down $3.00, I've gained nothing and realized no gain from the deal.
If I do not own shares but own options, then I have the right to buy the stock at X price before Y date.
If the stock is trading at $21, then sure my options go way up in value.
But if a special dividend is paid, then long options = ......?.......
I own calls. My concern is that when dividends are issued, they are paid to "shareholders who owned the stock" as of a "specific date" in the past. Ex. If Yahoo paid a special dividend tommorrow of $2.00, the people who bought the stock today won't get the dividend.
I've had my options for months. They do give me the right tobuy the stock at a certain pricce but the date I would convert them into stock could-would be after the "date of record" to be eligible for the dividend.
Re: I think it's time to fire your broker. A dividend does not effect the option you hold.
Wrong. I can give you guys first-hand experience. WTI recently declared a .63 special dividend. My JAN 22.50 calls were changed to 21.87 calls by my broker, to my pleasant surprise.
It's odd to see that kind of number on an option, but true.
why fire my option specialist?
If a large special dividend will cause the stock to go down, then it should lower the strike price for the option I own too.
If I have 10 Feb. $16 calls and the stock goes down to $14 due to a special dividend, my Feb. $16 should "not lose" value. I should get the same "monetary value" as the person with 1000 shares.
It doesn't go down automatically. the stock price is not tied physically to the dividend.
it is very conceivable that they could issue a 3-5 dollar special dividend, and the price might only get hit a little, or could even go up if other plans are announced.
but...if yhoo is selling for 16 and they give a dividend of 14 and have 2 in cash, AND STILL HAVE 15 & Alibaba and the core...then the post dividend price will be between 12-14+ and you will have 14 = about 26-28. You don't pay tax on the 14 as it is essentially cash back that you have already paid in but your cost basis drops. So if you bought for 16 it would drop to 2 and you would pay taxes on any gain when you sell above that price....and you will have a gain..so you will be lucky enough to "earn" the right to pay taxes!!!!