If you’re building a trading system, the historical closing price of a stock is a key input. But sometime, you might notice that there’s an abnormal price drop in the data. Most often than not, this isn’t due to a price drop, but because there’s a split or a bonus. In this video, we look at how to adjust the data for splits and bonuses.
We also look at how splits and bonuses impact futures and option contracts and how they’re adjusted.
While a lot of people know about the impact of corporate actions on prices, not many know about how corporate actions impact the balance sheets of companies. We understand this aspect.
Charts are adjusted for both BOB and SBI. The ex-dividend date for BOB is today, for SBI it was on 16th May.
Cannot comment on why other brokers don’t do it, but we adjust charts so you get a more accurate historical measure of the stock’s performance.
For example, when company announces a dividend, the stock price drops on the ex-date. If the charts aren’t adjusted, it will continue to show a loss on that day (when there is no loss for investors as they get the dividend amount in the bank account) and won’t give an accurate measure of returns.
We adjust it only for extraordinary dividends, not all. Exchange also adjusts the options’ strike price for extraordinary dividends (above 2% of the market value of the underlying security).
