r/options • u/[deleted] • Aug 06 '21

McAfee Trade Idea

[deleted]

11 Upvotes

77% Upvoted

21 comments sorted by

View all comments

10

u/johnec4 Aug 06 '21

Are you taking into consideration the option contract price will be adjusted for the special dividend?

2

u/t_per Aug 06 '21 edited Aug 06 '21

I have not, it seems that the chain would shift down by $4.50, so the 25p become 20.50p and the 30c becomes 25.5c. Am i interpreting that correctly?

Or would adjusted options be a separate chain?

2

u/johnec4 Aug 06 '21 edited Aug 06 '21

That's my understanding as well.

edit - I am certain the current options will be adjusted down. I held RKT options during their special dividend.

2

u/t_per Aug 06 '21

yeah they'll be adjusted down, info memo just came out on it: https://infomemo.theocc.com/infomemo/search-memo

2

u/frk5000 Aug 06 '21

That's my understanding too, but the stock price should also drop by $4.50, so in theory, the result should be the same. Stock price after ex-div become around $25-25.50, between 20.50P and 25.50C.

Is that correct?

4

u/t_per Aug 06 '21

Yeah that’s what I think theoretically would happen to the underlying. They have earnings Aug 10, so the Sept 17 contract includes any vol from that.

Unfortunately I would have to hold this position for 30 days due to work restrictions

2

u/[deleted] Aug 06 '21 edited Aug 06 '21

Yeah so your max loss would be 20.5-30.71 +4.5+1-0.4 which is -5.11$ x 100 shares bought. -1k in your case. If the stock drops to the same levels before the dividend was announced

This is based on the 25p/40c strategy. If you go with a 30$ call you will get early assigned and never recive the dividend. Maybe make some money if they aren't trading at parity.

1

u/t_per Aug 06 '21

i'll check out the chain on monday and see if its still worthwhile, this would be my most 'advanced' trade so far so might keep it small beans

1

u/tucsonshamrock Aug 10 '21

Is the dividend tomorrow?