RIG Dividend questions

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xiangfin

Hi,

I am holding a RIG call spread 125-130. It is said that RIG will pay a 20$ dividend this week.

1. What is the best strategy for me? Should I early exercise my long 125 call?

2. What will happen if I am assigned to the short 130 call?

3. How the ex-dividend date is defined and what should I do?

Thanks.
 
I don't show a $20.00 dividend, or any dividend coming up. The options don't appear to reflect it happening either. Is this just a hypothetical question? If so, let me know, I'll give you the answer.

Don
 
Quote from xiangfin:

Hi,

I am holding a RIG call spread 125-130. It is said that RIG will pay a 20$ dividend this week.

1. What is the best strategy for me? Should I early exercise my long 125 call?

2. What will happen if I am assigned to the short 130 call?

3. How the ex-dividend date is defined and what should I do?

Thanks.
More...

I don't see any dividends for RIG at all, either.

Ex-dividend date is set 3 business days prior to the Holder of Record date since it takes 3 days to settle stock trades. If the 130 call remains OTM then it won't be exercised. Early exercise for dividends is only economical for ITM calls.

The way to determine whether it is worth early exercising the call you compare the dividend amount to the cost of carry (strike*interest rate*number of days to expiry/360) plus the price of the corresponding put.

For example, if you have 9 days to expiry and the put is trading at 1.8, then the cost of carry is 125*0.045*9/360=0.14. Adding that to 1.8 gives you 1.94. So if the dividend is more than 1.94 then you exercise, if not then you don't. However, 4.5% is about the rate pros pay, yours is probably higher so your threshold would be higher.

If you're assigned on a short call due to the stock going ex-dividend then you'll have a short stock position on the ex-dividend date and you will have to pay the dividend.
 
Quote from MTE:

The way to determine whether it is worth early exercising the call you compare the dividend amount to the cost of carry (strike*interest rate*number of days to expiry/360) plus the price of the corresponding put.
More...

If the original poster is correct, a dividend that large would be considered a special dividend, and the option contracts would be adjusted accordingly.

Thus, there should be no advantage to exercising the options early at any price because the options will require the delivery of cash in the amount of the dividend.
 
Quote from commiebat:

If the original poster is correct, a dividend that large would be considered a special dividend, and the option contracts would be adjusted accordingly.

Thus, there should be no advantage to exercising the options early at any price because the options will require the delivery of cash in the amount of the dividend.
More...

Exactly, if it is a special dividend then the contracts are adjusted.
 
Quote from IV_Trader:

not always , sometime strike is reduced.
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That's one type of adjustment. It's equivalent to requiring the delivery of cash, but they'd most likely only reduce the strike if the special dividend were a convenient round number.
 
It's a proposed merger of equals between GSF and RIG. If approved, RIG shareholders will receive

A) 69 shares of "New" Transocean Inc. ("RIG") common
(B) $3,303.00 cash
(C) cash in lieu of 0.96 fractional share of "New" RIG common

The contracts will be adjusted.

For details go to CBOE.com
 
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