Do stock option prices change on the ex-date?

Question

I know the market value already has the dividend factored in, but do the prices generally change on the ex-date despite that fact?

Answer 1

European options will already have that factored in. However, American options will change value on the ex-dividend date. Usually, the effect is minimal -- but if the company is paying a one time large dividend (as Microsoft did a few years ago) then the change can be substantial.

You are probably aware that American options can be exercised at any time while European options can only be exercised at expiration. It has nothing to do with them being issued in America or Europe. Most exchange traded options are American. Most over-the-counter options are European.

Incidently -- there is no difference between the price and the market value.

Answer 2

There are several factors that affect the price of an option. Two of the most critical are the current stock price in relation to the strike price and the time until expiration. If the dividend is small in relation to the stock price (e.g., one percent or less), you won't see much change in the price of the stock itself, so you won't see it in the option price. If the dividend is large (e.g., 3% or more), you might see a slight drop that corresponds with the price of the stock itself. Typically, there's no "extra processing" that's done to account for the dividend, they just go with the stock price.

One note: if you hold a deep in the money call option (e.g., strike price $5 or more below the current price), it's not unusual to have the call exercised just prior to the ex-dividend date so that the option owner receives the dividend instead of letting you have it. (I know this from experience... I've had several deep in the money calls exercised just before the ex-dividend date.)

Answer 3

No. Options contain "time value". For this reason options are very rarely exercised prior to expiration. Thus, it's the market price on the expiration date that matters, not intervening events like dividend payments.

Answer 4

strategies have already got dividends factored into their value, so the only strikes they make on ex-div dates reflect the upward push/decline after making an allowance for dividends. Assuming the fee falls by the quantity of the dividend day after immediately, positioned strategies won't replace in value, because of the fact there is not any benefit to place holders to exercising an decision until now an ex-div date (they might omit out on the dividend, or if short, ought to pay it). case in point, a deep interior the money positioned that expires a pair of days after the ex-dividend date may be worth strike value much less contemporary value much less dividend until now the ex-div date because of the fact the marketplace might assume the share value might drop by the fee of the dividend on the ex-div date. case in point, in case you had a $40 5 decision expiring in some days, a $a million dividend, and the share value at $40 until now ex-div, and espresso volatility (ie, no time top rate), the alternative might commerce at $6. although, call strategies would be valued in any different case counting on how the time fee (decision value much less contemporary value plus strike value) compares to the fee of the dividend. If the alternative has much less time fee than the dividend, the marketplace will assume the alternative gets exercised until now the ex-dividend date, and the alternative value will reflect that assumption. If the time fee is extra, then the alternative would be priced based on the instant share fee much less the dividend fee. If the dividend fee is larger than the time fee, then the dividend will fall by the quantity of the difference between time fee and dividend fee...yet everybody ought to have exercised. There are fashions on the cyber web (Black-Scholes) the place you are able to be sure theoretical time fee...or you are able to look on the alternative value. If decision value is in actuality contemporary value minus strike, the marketplace is assuming the alternative gets exercised until now ex-div date. no count if it particularly is larger, then it particularly is not any longer. it incredibly is simplified some...there are some quite complicated formula for valuing strategies...even though it gets to the gist of your question.