23 lines
1.4 KiB
Plaintext
23 lines
1.4 KiB
Plaintext
Dividends
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Another difference between call and married-put values is dividends. A call
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option does not extend to its owner the right to receive a dividend payment.
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Traders, however, who are long a put and long stock are entitled to a
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dividend if it is the corporation’s policy to distribute dividends to its
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shareholders.
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An adjustment must be made to the put-call parity to account for the
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possibility of a dividend payment. The equation must be adjusted to account
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for the absence of dividends paid to call holders. For a dividend-paying
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stock, the put-call parity states
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The interest advantage and dividend disadvantage of owning a call is
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removed from the market by arbitrageurs. Ultimately, that is what is
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expressed in the put-call parity. It’s a way to measure the point at which the
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arbitrage opportunity ceases to exist. When interest and dividends are
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factored in, a long call is an equal position to a long put paired with long
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stock. In options nomenclature, a long put with long stock is a synthetic
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long call. Algebraically rearranging the above equation:
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The interest and dividend variables in this equation are often referred to
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as the basis. From this equation, other synthetic relationships can be
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algebraically derived, like the synthetic long put.
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A synthetic long put is created by buying a call and selling (short) stock.
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The at-expiration diagrams in Exhibit 6.2 show identical payouts for these
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two trades. |