Market Traps-Series 1-(Dividends Impact on Strike price)Hi All ,
Once upon a time last year.
"Mr.Ram Nene had bought Hindustan zinc put options strike price of 191 Rs and 186 Rs at premium of 9rs and 7rs" , Huge position was created
This activity was carried out 2 days before the record date of 25 Rs dividend payment by Hindustan zinc , The spot price of stock was trading around 190-192 range.
On record date when Ram Nene logged in to his account he found out that the strike price of his contracts were reduced from 191 to 166 and 186 to 161 .
Now any guess on whats the impact on options premium ? options premium felled by half.
Amount of losses faced were extraordinary.
Heard of any such story ? I bet you haven't.
Following is NSE link , refer the paragraph Dividend , point number 2 (its roman number) :
www.nseindia.com
