Stocks & Commodities V. 29:12 (54): Explore Your Options by Tom Gentile
Product Description
Explore Your Options by Tom Gentile
PAYING THAT PAYOUT?
If I purchase a protective put against a stock that’s set to pay a dividend, am I obliged to cover the dividend? What do I need to do in order to make sure I collect the payout? The good news is that a holder of long stock protected by a long put doesn’t need to do anything in front of the ex-dividend date in order to receive the shareholder payout. The dividend is actually priced into the put in front of the event. If this weren’t the case, there would be the proverbial but unlikely free lunch on Wall Street available.
Directionally speaking, as long as you like this position — which is called either a synthetic long call or married put and maintains long deltas — you’ll want to hold it through the ex-date, or forfeit the dividend and/or give up the position’s protection afforded by the put. To illustrate, we’ll use a dividend scenario with a stock called Xyz that trades for $100 and is set to go ex-dividend the next day with a quarterly payout of $5.00 per share.
PAYING THAT PAYOUT?
If I purchase a protective put against a stock that’s set to pay a dividend, am I obliged to cover the dividend? What do I need to do in order to make sure I collect the payout? The good news is that a holder of long stock protected by a long put doesn’t need to do anything in front of the ex-dividend date in order to receive the shareholder payout. The dividend is actually priced into the put in front of the event. If this weren’t the case, there would be the proverbial but unlikely free lunch on Wall Street available.
Directionally speaking, as long as you like this position — which is called either a synthetic long call or married put and maintains long deltas — you’ll want to hold it through the ex-date, or forfeit the dividend and/or give up the position’s protection afforded by the put. To illustrate, we’ll use a dividend scenario with a stock called Xyz that trades for $100 and is set to go ex-dividend the next day with a quarterly payout of $5.00 per share.
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