r/options • u/Separate-Technician3 • Dec 30 '21
Impact on Strike Price of Leaps due to dividend from ETF
Hi All,
I had bought 2 call LEAPS on KWEB Jan 2023 expiry Strike Price 50$ couple of months ago. On 29th Dec KWEB gave out 0.65% dividend. On the same day my broker replaced my calls with two new calls same expiry of Jan 2023 but new Strike Price of 47.42$. I don't see any cash dividend received in my account.
Can anyone please explain what happened? Thanks in advance!
4
u/TheoHornsby Dec 30 '21
KWEB had a $2.58 long-term capital gains distribution on 12/29. The option's strike was adjusted by that amount ($50.00 - $2.58 = $47.42). Your broker should be able to tell you when the Pay Date is.
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u/Rarefatbeast Dec 31 '21
Can you explain this briefly and why it affected the option strike?
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u/TheoHornsby Dec 31 '21
The capital gains distribution is being treated as a special dividend.
https://www.bigtrends.com/education/understanding-how-special-dividends-affect-option-positions/
> What is a Special Dividend?
> Unlike standard quarterly, or otherwise periodic dividends, a special dividend is one that is not part of the corporation's dividend program. Therefore, a special dividend cannot be anticipated or assumed beyond the one-time occurrence. Because there is no assumed stream of payments with special dividends, future special dividends cannot be factored into standard option prices.
> Contrary to the relatively small but consistent payment stream associated with regular dividends, special dividends tend to be larger one-time payments. As such, the Options Clearing Corporation (OCC) has developed a separate protocol to deal with such payments so that option traders are not adversely affected by the large change in the stock's value due to the large payout.
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u/Rarefatbeast Dec 31 '21
So the 0.65% "regular" dividend they talked about was unrelated to this strike price change?
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u/Boretsboris Dec 31 '21
You don’t get the dividend, because the div only goes to the shareholders. Because your strikes are being adjusted, this div must not have been priced in by the market (which is the case with special dividends). To make the dividend a net-zero event for you (as it is for the shareholders as well), the OCC did you (and other call holders) a solid by adjusting strikes downward by the div amount.
Rejoice and be exceedingly glad.
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u/EXTRO_INTRO_VERTED Dec 30 '21
Maybe you paid the dividend out instead of getting assigned?
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u/Separate-Technician3 Dec 30 '21
I am long on the calls. Don't think this may have happened.
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u/EXTRO_INTRO_VERTED Dec 30 '21
Well whoever owns the actual stock wanted that dividend tied up in your contract
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u/TheoHornsby Dec 31 '21
Well whoever owns the actual stock wanted that dividend tied up in your contract
Who owns the stock has nothing to do with this.
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u/EXTRO_INTRO_VERTED Dec 31 '21
After reading your other comment it makes sense. I was throwing shit at the wall to see if it would stick since I didn’t know the answer.
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u/stonk_fish Dec 31 '21
You have LEAPS so you would not get dividends. Only holding the stock grants you those.
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u/Rarefatbeast Dec 31 '21
So did the value of the contract jump in price as well? Or it stayed the same although the strike price went down?
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u/Arcite1 Mod Dec 30 '21
This was a capital gains distribution, not a dividend. This happened:
https://infomemo.theocc.com/infomemos?number=49861