HOW the adjustments for dividends declared is made in the option price and futures price?
The basis for any adjustment for corporate actions shall be such that the value of the position of the investor, on the cum and ex-dates for the corporate action, shall continue to remain the same as far as possible. This will facilitate in retaining the relative status of positions viz. in-the-money, at-the-money and out-of-money. This will also address issues related to exercise and assignments. Adjustments are made in the strike price of stock options when there are corporate actions such as bonus issue, stock split, rights issue, mergers, hive offs etc. Note that any adjustment for corporate actions would be carried out on the last day on which a security is traded on a cum basis in the underlying equities market, after the close of trading hours. In the case of dividend, adjustments to strike prices in option contract will depend on the quantum of dividend paid. If the amount paid is less than 10 per cent of the market value of the underlying stock, no adjustment will be made in t
