How can you hedge against a stock dropping after a special dividend is paid?

Question

When a company announces a special dividend and it is paid at pay date, the underlieing stock will usually drop the same amount as the dividend. Is there any way this can be hedged against?

Answer 1

You can't hedge against it, because it is a known fact in the market and all derivative instruments like futures and options will have taken this drop into account with respect to their pricing.

It would also be a strange notion to imagine that you could collect the dividend and have someone else pick up the costs for the subsequent and logical price drop (all other things being equal).

Answer 2

It drops because that much has been taken out - no, you can't hedge against it. If you have your dividends reinvested, the value of your holdings will make up for the drop because you'll have more shares. If you take the cash - well, you cashed it out, so the cash you got would make up for the drop in stock price.