ITC’s ‘extraordinary’ dividend and its impact on F&O trading

Chennai | Updated on July 03, 2020 Published on July 03, 2020

ITC has announced a dividend of ₹10.15, which was over 5 per cent of the market rate (on the day when dividend was announced) and thus, considered as an extraordinary dividend. The stock will turn ex-dividend on July 6.

According to Motilal Oswal Financial Services, since it is an extraordinary dividend, future price trades at par with spot price.

F&O impact

For options, the full value of dividend would be deducted from all the cum-dividend strike prices on the ex-dividend date (July 6). All positions in existing strike prices should continue to exist in the corresponding new adjusted strike prices, said NSE. For example, a 200-strike call option would be adjusted as 189.85-strike call option. Similarly, a 210-strike put option would be adjusted to 199.85 put option. However, in line with the spot price, futures price will also open lower on July 6, adjusting for the dividend. But for mark-to-market calculation, July 3 close minus ₹10.15 would be considered. That means, as ITC July futures closed at ₹207.30 on Friday, the mart-to-market calculation for July 3 will be done from ₹197.15 (₹207.30 – ₹10.15).

However, there will not be any change in the lot size and all the adjustments would be done through mart-to-market calculation only.

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Published on July 03, 2020
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