Add training workflow, datasets, and runbook
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James is long the calls, he loses 1.52 per option. If, however, he were short
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the calls, 1.52 would be his profit on each option.
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Put traders are affected as well. Another trader, Marty, is long the 60-
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strike XYZ puts. Before the dividend announcement, Marty was running his
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values with a $0.10 dividend, giving his puts a value of 5.42. Exhibit 8.3
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compares the values of the puts with a $0.10 quarterly dividend and with a
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$0.50 quarterly dividend.
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EXHIBIT 8.3 Effect of change in quarterly dividend on put value.
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When the dividend increase is announced, Marty will benefit. His puts
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will rise because of the higher dividend by $0.66 (all other parameters held
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constant). His long-term puts with six quarters of future expected dividends
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will benefit more than short-term XYZ puts of the same strike would. Of
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course, if he were short the puts, he would lose this amount.
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The dividend inputs to a pricing model are best guesses until the dates
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and amounts are announced by the company. How does one find dividend
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information? Regularly monitoring the news and press releases on the
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companies one trades is a good way to stay up to date on dividend
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information, as well as other company news. Dividend announcements are
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widely disseminated by the major news services. Most companies also have
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an investor-relations phone number and section on their web sites where
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dividend information can be found.
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