Explore Your Options  |  AUG 2004

Explore Your Options by Tom Gentile

Explore Your Options by Tom Gentile DIVIDENDS AND OPTIONS PRICES How does a company’s dividend affect the option price? — Newman The dividend can be an important influence on a stock option’s price. Obviously, if the company pays no dividend, it makes no difference. However, all else being equal, a dividend will lower the value of a call option and make a put option more expensive. Why? Because after the dividend is paid, the share price will fall to reflect the dividend payment. Further, the fact that the stock falls after the dividend is paid makes calls less valuable and puts more expensive.

by Tom Gentile