Oil India has declared a dividend of Rs 8.5 and the record date is Feb 22. Can I the buy the stock in cash and sell futures and pocket the dividend?

[suresh]

Oil India has declared a dividend of Rs. 8.5 and record date is 22 Feb. Oil India Feb Fut is at 171. Why can’t one buy a large quantity of Oil India in cash, and sell same in future, later on, expiry square off both and pocket the Rs. 8.5 dividend?

[Nakul]

As per the SEBI guidelines for adjustments in F&O contracts, a dividend of 5% and above of the market price of the underlying is considered to be an extraordinary dividend.

Oil India has declared a dividend of Rs. 8.5 which is above 5% of the market price of the underlying as on the dividend announcement date. Hence, there will be an adjustment in the F&O contracts on the ex-date. The adjustment for this particular case has been explained here.

Oil India Limited (OIL) has declared the dividend of Rs. 8.50 per equity share and February 21st is the ex-date. Will this effect the F&O contracts?

The F&O contracts will be adjusted for the dividend.SEBI guidelines state that The adjustment in strike price shall be carried out in the following cases of declaration of dividends: Dividends declared at and above 5% of the market value of the underlying stock. In this case, the dividend is over 5%. Adjustments for Futures Contracts: Base price of the Futures contracts on February 21, 2019 will be reference rate less aggregate amount of dividend i.e. Rs. 8.50/-. The reference rate to be …

Due to this adjustment, there wouldn’t be any arbitrage opportunity. You can know more about corporate action adjustments here.