Hi, I am relativey new to options and I am having some issues understanding how to deal with a strategy that has 2 different expiries to understand what amount of dividend each option is considering in the price. If dividends are paid before these options expire and assuming some is paid before the first option expires and the rest after that date (but still before the second option expires), how can I know where is the level of the underlying their are considering (so something like current spot minus the anticipated dividend)?
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How to know how much dividend an option is anticipating
- Thread starter squeezeup
- Start date
Hi, I am relativey new to options and I am having some issues understanding how to deal with a strategy that has 2 different expiries to understand what amount of dividend each option is considering in the price. If dividends are paid before these options expire and assuming some is paid before the first option expires and the rest after that date (but still before the second option expires), how can I know where is the level of the underlying their are considering (so something like current spot minus the anticipated dividend)?
You do not get dividends because you do not own the shares unless, those options end up in the money and you later on exercise your right to buy and pay for those shares at the strike price of your option. Dividends go the the shareholder on record based on the cutoff date. If you bought your shares past the cutoff, record date, you will not get the dividend but, only those shareholders who bought their shares on or before the record date.
Hi, I am relativey new to options and I am having some issues understanding how to deal with a strategy that has 2 different expiries to understand what amount of dividend each option is considering in the price. If dividends are paid before these options expire and assuming some is paid before the first option expires and the rest after that date (but still before the second option expires), how can I know where is the level of the underlying their are considering (so something like current spot minus the anticipated dividend)?
Use put call parity.
Use put call parity.
$Div = Spot - Strike + Put - Call + interest
%DivYield = iRate - (LN(Fwd/Spot)/(DTE/365))
It is a bit more complicated because you usually trade American options. The put-call parity is about European options. Ideally, using an American option pricer with the appropriate dividend model you iterate to find the discrete dividend amount such that ATM American call IV = ATM American put IV where IV is the implied volatility.
It is a bit more complicated because you usually trade American options. The put-call parity is about European options. Ideally, using an American option pricer with the appropriate dividend model you iterate to find the discrete dividend amount such that ATM American call IV = ATM American put IV where IV is the implied volatility.
American exercise rarely matters unless the div is crazy high. If the div is expected to be crazy high, then use a high upside strike.