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American Capital Agency Corp. Message Board

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  • cwn600 cwn600 Dec 2, 2012 11:57 PM Flag

    Any Chance of A Special Divi in Dec. to Beat The Cliff, or It Doesn't Matter?

    "I used to be up on the EX and payable date with special dividends. Isn't it true that they occur at later dates (EX) than the typical two business days before the record?"

    Only when the distribution equals or exceeds 25% of the the company's share price. Costco's does not, so regular dividend dates apply.

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    • Hey Cwn600,

      They treated Costco's 7.00 divi as a "special" dividend and subsequently changed the actual Put strikes by 7.00, so the 105's are now 98's. So, I was correct in that the 25% rule no longer applies on these dividends apparently.

      DocReits

      Sentiment: Strong Buy

      • 1 Reply to reits_r_us
      • The 25% rule for determining ex-dates still applies but the options adjustment policy changed earlier this year. In a memo to members dated September 2, 2010, they announced:

        "OCC Information Memo 27649 describes additional changes to the policy that will govern adjustments to options in response to cash dividends or distributions. These additional changes will become effective on February 1, 2012 and concern the authority of the Securities Committee to stop adjusting for certain cash dividends which had previously occasioned adjustments."

        "Under the changes to the OCC By-Laws which became effective in February 2009, a cash dividend or distribution will be considered ordinary (regardless of size) if it is declared pursuant to a policy or practice of paying such dividends on a quarterly or other regular basis. Dividends paid outside such practice will be considered non-ordinary. OCC will normally adjust for non-ordinary dividends unless the amount is less than $12.50 per contract."

        At first that sounds pretty clear-cut, but then they went and mucked it all up by saying, "All adjustments are determined on a case by case basis by an adjustment panel of the OCC Securities Committee."

        So, if all adjustments are subject to a case by case review, there's no way to tell in any individual case until they publish the adjusted numbers ... or don't.

    • Thanks cwn600,

      I was thinking about that 25% rule today but remember the OCC changed that rule (I thought) about a year or two ago. I will have to look it up.

      If you are correct and the EX does occur this Thursday(Dec 6th) and the PPS is basically @ 104 and the Dec105Puts are trading @ 2.45(Using tonight-Dec 2nd- as a proxy for this coming Wednesday's close), the opening price tomorrow(using the proxy) would be 97.00(104-7), and you sell your Put for 8.00 minus 2.45 cost and you just made over 5.50/share overnight.

      You see why I think the 25% rule has expired. There are many people, like myself, who would take advantage of that in a heartbeat so I will do some digging. I know that's too easy so I think the rules changed. Thanks for making me look it up. To be continued...;-)

      DocReits

      • 1 Reply to reits_r_us
      • No late night results so far on the 25% rule. Looks like it is still in place, so I assume those Puts will be priced 7.00 more in premium before Thursday. I will call that august body of knowledge at Fidelity tomorrow so we can get a clearer answer(cough)...time will tell in any event..I know what's too good to be true, isn't true, so no high hopes....

        DocReits

        Sentiment: Strong Buy

 
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