The Board of Directors of Indian Oil Corporation (IOC) declared a dividend of Rs. 5/- per share, the ex-dividend date being, November 10th, 2023.
SEBI has prescribed a framework to the exchanges for adjustment of corporate actions in derivative contracts at the time of the corporate action. The exchange has published everything regarding the adjustments in case of corporate actions here. Accordingly, if a company declares a dividend at and above 2% of the market value of the underlying security, it is considered as an extra-ordinary dividend and the exchange will take action in the adjustment of the futures and options contracts in the underlying security.
Since the dividend declared by IOC is above 2% of the market value of the security, the exchange has published this circular on the adjustment of F&O contracts in IOC on the ex-date: November 10th, 2023.
All positions in futures contracts of IOC will be marked-to-market on the last cum-dividend date i.e. November 09, 2023, based on the daily settlement price of the respective futures contract. Subsequently, open positions will be carried forward at the daily settlement price less Rs. 5 (dividend amount) for the respective futures contract.
From November 10, 2023 (ex-dividend date), daily mark-to-market settlement of the futures contracts would continue as per normal procedures.
Assume you bought 1 lot (9750 quantity) of IOC futures on November 09, 2023, at Rs. 95, and the daily settlement price at the market close is Rs. 97, you would have made a mark-to-market profit of Rs. 2 per share.
On November 10, 2023, the previous day’s position will be carried forward at Rs. 92 (i.e. 97 - 5). If the closing price on November 10th is Rs. 94, you’ll make a mark-to-market profit of Rs. 2 per share.
The full value of the dividend i.e. Rs. 5 will be deducted from all the cum-dividend strike prices on the ex-dividend date. All positions in existing strike prices will continue to exist in the corresponding new adjusted strike prices.
The strike price of Rs. 100 Call Option will be reduced to Rs. 95 on November 10, 2023, and the positions in Rs. 100 Call Option will continue to exist in Rs. 95 Call Option.
The lot size of the F&O contracts will not change.
Also, if you hold equity shares of IOC in your Demat account as of November 10, 2023 (ex-date) you will be entitled to receive the dividend which will be credited directly to your primary bank account within 30 to 45 days from the record date.