Trade Logic Unlocked

Dividend Pricing

Trade Logic Unlocked

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Option prices are influenced by a handful of relevant market metrics, one of which being any upcoming dividends in the underlying stock. It is important to note that these future dividend payments impact the pricing dynamics of both the calls and the puts for that stock. With the calls, the issue is largely one of assignment, and it is determined by extrinsic value in the option relative to the dividend amount. With the puts, the impact is that of the extrinsic value being “pumped up” in the puts to reflect the upcoming dividend and prevent any arbitrage opportunities.

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