V. 22:8 (63): Explore Your Options by Tom Gentile

V. 22:8 (63): Explore Your Options by Tom Gentile
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Explore Your Options by Tom Gentile

DIVIDENDS AND OPTIONS PRICES

How does a companyís dividend affect the option price? ó Newman

The dividend can be an important influence on a stock optionís price. Obviously, if the company pays no dividend, it makes no difference. However, all else being equal, a dividend will lower the value of a call option and make a put option more expensive. Why? Because after the dividend is paid, the share price will fall to reflect the dividend payment. Further, the fact that the stock falls after the dividend is paid makes calls less valuable and puts more expensive.




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