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Coal India (₹454.15) announced an interim dividend of ₹15.75 last week. 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 November 5 as the record/effective date. On this day, the stock price and all derivatives contracts on Coal India will be adjusted appropriately.
With respect to adjustment in futures contracts, the reference rate of the relevant contract on November 4 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 November 5 at the daily settlement price on November 4 minus ₹15.75, the dividend amount.
Suppose the nearest expiry futures (November contract) closes ₹450 on November 4. It will be revised to ₹434.25 (₹450 less ₹15.75). Hence, the contract value will come down.
Likewise, in options, all the strike prices in the option chain of Coal India will be subtracted by ₹15.75 from November 5. For example, the strike price of 445 and 450 will be modified to 429.25 and 434.25 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.
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