Indian Oil Corporation (Symbol: IOC) has declared a dividend of Rs. 7 per share and the Ex-Date of the dividend being 12 July 2024. SEBI has established guidelines for the exchanges in the event of dividend announcement. If a company declares a dividend of 2% or more of the market value of its underlying security, it is deemed an extraordinary dividend, prompting the exchange to adjust the F&O contracts for that security.
As Indian Oil Corporation (Symbol: IOC) has declared a dividend of Rs. 7 per share which exceeds 2% of the market value, the exchange has issued a circular regarding the adjustment of F&O contracts which will be effective from 12 July 2024. The circular can be found here.
Adjustment in Futures:
All open positions in F&O of IOC as on the last trading day before 12 July 2024 will be carried forwarded on 12 July 2024 at the daily settlement price less Rs. 7 which is the dividend amount for the respective futures contract. In short, for any open positions of IOC, consider your trade price as traded price minus the dividend.
Example: Suppose you bought IOC Futures at a price of Rs. 164.33 one trading day before 12 July 2024. At the end of day, your trade would be settled at the settlement price or closing price which is Rs. 172.11 (marking to market). On the Ex-Date, 12 July 2024, your Buy Price will change to Rs. Rs. 172.11 – Rs. 7 = Rs. 165.11. Similarly, in case you sold IOC Futures at a price of Rs. 164.33 one trading day before 12 July 2024. At the end of day, your trade would be settled at the settlement price or closing price which is Rs. 172.11 (marking to market). On the Ex-Date, 12 July 2024, your Sell Price will change to Rs. Rs. 172.11 – Rs. 7 = Rs. 165.11.
Adjustment in Options:
The dividend amount of Rs. 7 will be subtracted from all the strike prices on the 12 July 2024 and thus new strikes will come in place. All the open positions in old strike prices will continue to exist in the corresponding new adjusted strike prices. In short, only the contract name will change in your options positions, everything else remains the same.