Tech Mahindra (₹1,696.10) announced an interim dividend of ₹30 on June 13. The face value per equity share is ₹5. 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 July 4 as the record/effective date. On this day, the stock price and all derivatives contracts on Tech Mahindra will be adjusted appropriately.
With respect to adjustment in futures contracts, the reference rate of the relevant contract on July 3 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 July 4 at the daily settlement price on July 3 minus ₹30, the dividend amount.
Suppose the July expiry futures closes at ₹1,700 on July 3. It will be revised to ₹1,670 (₹1,700 less ₹30). Hence, the contract value will come down.
Likewise, in options, all the strike prices in the option chain of Tech Mahindra will be subtracted by ₹30 from July 3. For example, the strike price of 1,700 and 1,740 will be modified to 1,670 and 1,710 respectively.
That said, the aforesaid 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.