As per exchange, all the options strikes and the futures contracts are adjusted if a company announces extraordinary dividends (dividend amount =>2% of the market price of the stock).
The adjustment process depends on the type of dividend declared. If the dividend is less than 2% of the stock's market value, it is considered an ordinary dividend, and no adjustment is made to the strike price. However, if the dividend is equal to or more than 2%, the strike price of the options and futures price contract will be adjusted.
On the last cum-dividend date, all Futures positions are marked-to-market based on the daily settlement price. These positions are then carried over to the next day with the settlement price adjusted down by the dividend amount. From the ex-dividend date onward, Futures contracts are settled daily as usual.
For options contracts, the entire dividend amount is subtracted from all cum-dividend strike prices on the ex-dividend date. Existing positions at the original strike prices are carried over to the new adjusted strike prices. The lot size of the F&O contracts remains unchanged.
For example, VEDL has declared an extraordinary dividend of Rs. 20. Here’s how this will be adjusted in F&O contracts.
Adjustment of Futures: Assume you bought 1 lot (2300 Qty) of VEDL futures on September 9, 2024, at Rs. 460 and the daily settlement (closing) price was Rs. 461.55, securing a profit of 1.55 * 2300 Qty = Rs. +3565.
On the next day (September 10, 2024), your Future position will be carried forward at Rs. 441.55 (461.55 - 20) (closing price - dividend amount). The settlement price for the same day was 440.45, you will make a M2M loss of Rs. -2530.
Adjustment of Options: Assume you had bought the 450 call option strike price before the ex/record date. On the ex-dividend date, your call option will continue to exist as per new strike price of 430 {450 - 20 (dividend)}.
Old strike price New strike price
