what about BPCL after ex dividend on future price
As the dividend declared by BPCL is greater than 5%, it is considered as extraordinary dividend. On ex-date there will be adjustment in price of Futures and Strike Price of the Options.
The adjustments are carried out in such a way 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. You can check out this example of REC for more information: Adjustment of F&O contracts in REC Limited
this happens only in case of" greater than 5%, extraordinary dividend" .
not applicable if less than 5% !
correct ?
You are right.
Go through this link
https://www1.nseindia.com/products/content/derivatives/equities/adjust_in_case_corp.htm
Dividends
a. Dividends which are below 5% of the market value of the underlying stock, would be deemed to be ordinary dividends and no adjustment in the Strike Price would be made for ordinary dividends. For extra-ordinary dividends, which are at and above 5% of the market value of the underlying security, the Strike Price would be adjusted.
OR
b. All cases of dividends, where the listed entity has sought exemption from the timeline prescribed under the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
To decide whether the dividend is “extra-ordinary” (i.e. which are at and above 5% of the market price of the underlying stock.), the market price would mean the closing price of the scrip on the day previous to the date on which the announcement of the dividend is made by the Company after the meeting of the Board of Directors. However, in cases where the announcement of dividend is made after the close of market hours, the same day’s closing price would be taken as the market price. Further, if the shareholders of the company in the AGM change the rate of dividend declared by the Board of Directors, then to decide whether the dividend is extra-ordinary or not would be based on the rate of dividend communicated to the exchange after AGM and the closing price of the scrip on the day previous to the date of the AGM.
In case of declaration of “extra-ordinary” dividend by any company, the total dividend amount (special and / or ordinary) would be reduced from all the strike prices of the option contracts on that stock.
The revised strike prices would be applicable from the ex-dividend date specified by the exchange.
so . then . in this case ; the call options buyers and the put option seller would suffer loss if the dividend is less than 5% !
correct ?
Everybody have their expectations on dividend. So its all discounted in the price.
If you see sometimes futures will be trading lesser than spot price in the anticipation of dividend being declared. Same way, even option writers make such adjustments.
There won’t be any difference in the premium of the options as the underlying price is adjusted, the Strike price options also get adjusted with the same ratio.