Stock price decrease after ex-dividend in Cash market as they will get dividend. But what will happen to Futures price & Options premium ?
If it’s normal dividend (lesser than 5%), market factors in the dividends and this is when F&O generally trade at discount to spot price.
If it is an extraordinary dividend (greater than 5%), in such cases the exchange has Adjustment Formula, through which they adjust Price, Strike Price, Lot Size of F&O such a way that that the value of the position of the market participants, on the cum and ex-dates for the corporate action, shall continue to remain the same as far as possible. There was recent example of REC which was explained here: Adjustment of F&O contracts in REC Limited
So if someone purchase futures before dividend declaration (normal) then he will suffer loss for dividend adjustment,
Please also specify whether 5% you mentioned is yield or on face value.
In normal dividend, Futures already trade at discount to spot price leading up to ex-dividend date, so when stock does ex-dividend and price of spot corrects to the extent of dividend paid but it has no impact on Futures price.
5% of the market value of the stock.
@ShubhS9 @siva @nithin
Dividend should be adjusted in price in charts too. Charts are incorrect without adjustment.
E.g. Take a look on MAJESCO chart. also BPCL, ITC and many more.
Trading View charts in their website, Gives this feature called “Adjust Data for Dividends”
What you think ? It should be or must be ?