Question About Dividends

robbo · May 25, 2004

If a stocks EX-Div date is 6th May04 do I have to be holding the stock at the close on the 6th May04 to be entitled to the dividend which is paid on 10th June04 (IBM)

lkh · May 25, 2004

you can sell as soon as it opens on ex dividend day.

science_trader · May 25, 2004

You have just to hold it overnight between the 5th and the 6th.

robbo · May 25, 2004

Quote from science_trader:

You have just to hold it overnight between the 5th and the 6th.

So I could buy it for example on the 5th at midday and sell it on the opening at the 6th and I would be entitled to the Dividend

science_trader · May 25, 2004

You could even buy it at the close on the 5th with a 'market on close' order if your broker let you do that. I've done it, and received my dividends.

Anyway, I hope you know that price will go down as much as the dividend (not exactly, but in the average, it does).

robbo · May 25, 2004

Quote from science_trader:

You could even buy it at the close on the 5th with a 'market on close' order if your broker let you do that. I've done it, and received my dividends.

Anyway, I hope you know that price will go down as much as the dividend (not exactly, but in the average, it does).

Thanks for the feedback.So does the price of the share go down to reflect the dividend on the open of the 6th for the above example.

JackR · May 25, 2004

First and most important would be the size of the dividend.

I'd say if the option was ITM the price would change. If it was out of the money I'd guess that Black-Scholes should have factored it in and you'd see no change. However, that would probably be influenced by how far out the expiration date was. I'm no expert, I generally do covered calls.

robbo · May 25, 2004

Quote from JackR:

First and most important would be the size of the dividend.

I'd say if the option was ITM the price would change. If it was out of the money I'd guess that Black-Scholes should have factored it in and you'd see no change. However, that would probably be influenced by how far out the expiration date was. I'm no expert, I generally do covered calls.

Hi Jack I meant to say price of the share in the previous Post not the price of the option

JackR · May 25, 2004

Yes. They adjust the stock price to reflect the dividend. However, the action of the market will also be reflected in the Open so you cannot assume an exact match.

Open limit orders to buy or sell are also adjusted to reflect the dividend unless a "Do Not Adjust" order was placed.

Hurricane · May 25, 2004

The standard operating procedure for some brokers is to not adjust limit orders when a stock goes ex-dividend (i.e. completely the customer's responsibility) or to only adjust buy orders.