CHAPTER 8
Dividends and Option Pricing
Much of this book studies how to break down and trade certain components of option prices. This chapter examines the role of dividends in the pricing structure. There is no greek symbol that measures an option’s sensitivity to changes in the dividend. And in most cases, dividends are not “traded” by means of options in the same way that volatility, interest, and other option price influences are. Dividends do, though, affect option prices, and therefore a trader’s P&(L), so they deserve attention.
There are some instances where dividends provide ample opportunity to the option trader, and there some instances where a change in dividend policy can have desirable, or undesirable, effects on the bottom line. ...
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