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Stocks

Coal India: Futures and Options Adjusted Down For Large Dividend

Coal India has just gone ex-dividend, and “fallen” by Rs. 29, from Rs. 304 to Rs. 275. This fall however is compensated by dividends that will be received by investors who have bought till yesterday.

The price of the future has also fallen, but buyers and sellers will make no losses or profits respectively, since the Rs. 29 dividend was big enough for the exchanges to declare an automatic adjustment – that is, Rs. 29 will just be struck off all futures prices and options strikes without any compensation either way. (Read this article)

This has taken on strange hues. The future went hugely down last week on rumours that the dividend would only by Rs. 10 – so the futures went to a discount of Rs. 10 to the cash price. And when the news came out of the larger dividend on Tuesday after market hours, the future went rapidly up on Wednesday.

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It also looks like some people got wind of the higher dividend on Tuesday before the market closed – look at the last three hours of trading on the 14th (red circle).

Also, now all option strikes are down by Rs. 29, and new strikes have been introduced, so it’s an option traders nightmare! (Or dream come true, depending on how you look at it)

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There’s never a dull moment in the markets. Brokers must be having a field time explaining this to their customers.

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