Bank of India (₹121.19) announced an interim dividend of ₹4.05 on May 30. The face value per equity share is ₹10. The dividend will lead to necessary adjustments in the futures and options (F&O) contracts on this stock on the record date.
The company has decided June 20 as the record/effective date. On this day, the stock price and all derivatives contracts on Bank of India will be adjusted appropriately.
With respect to adjustment in futures contracts, the reference rate of the relevant contract on June 19 will be considered. Reference rate will be the mark-to-market settlement price of the relevant futures contract. So, the open positions shall be carried forward to June 20 at the daily settlement price on June 19 minus ₹4.05, the dividend amount.
Suppose the nearest expiry futures (June contract) closes at ₹120 on June 19. It will be revised to ₹115.95 (₹120 less ₹4.05). Hence, the contract value will come down.
Likewise, in options, all the strike prices in the option chain of Bank of India will be subtracted by ₹4.05 from June 19. For example, the strike price of 120 and 125 will be modified to 115.95 and 120.95 respectively.
That said, the above measures are not likely to impact the overall trend of this stock. So, traders can stick to their views and are only required to note the changes in the contracts that they hold.