Coal India: Futures and Options Adjusted Down For Large Dividend

9 comments Written on January 17th, 2014 by
Categories: COALINDIA

Coal India has just gone ex-dividend, and “fallen” by Rs. 29, from Rs. 304 to Rs. 275. This fall however is compensated by dividends that will be received by investors who have bought till yesterday.

The price of the future has also fallen, but buyers and sellers will make no losses or profits respectively, since the Rs. 29 dividend was big enough for the exchanges to declare an automatic adjustment - that is, Rs. 29 will just be struck off all futures prices and options strikes without any compensation either way. (Read this article)

This has taken on strange hues. The future went hugely down last week on rumours that the dividend would only by Rs. 10 - so the futures went to a discount of Rs. 10 to the cash price. And when the news came out of the larger dividend on Tuesday after market hours, the future went rapidly up on Wednesday.

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It also looks like some people got wind of the higher dividend on Tuesday before the market closed - look at the last three hours of trading on the 14th (red circle).

Also, now all option strikes are down by Rs. 29, and new strikes have been introduced, so it’s an option traders nightmare! (Or dream come true, depending on how you look at it)

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There’s never a dull moment in the markets. Brokers must be having a field time explaining this to their customers.

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About the Author:
http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@capitalmind.in.

9 comments “Coal India: Futures and Options Adjusted Down For Large Dividend”

Your analysis is really very informative and excellent for a learner like me. It can be taken as a basic case study for anyone want to understand the fluctuation in market price of any stock.

What about indices? Do they also get adjusted if component stocks get adjusted for dividends?

The Index has something called a “Divisor” which is calculated each day. What will happen is that the divisor is adjusted so that Nifty remains constant. However the Nifty “Total Index Return” will go up because it has reinvested dividends.

How will the NAV of MFs which has invested heaviliy in Coal India be affected if I were to redeem my units today ?

Oh no problem, they’ll get the cash soon, and would have accounted for it as a receivable.

informative !

Thought the share price is adjusted to earnings, the outflow for the co is more due to 15% ddt ,
What according to ur analysis happens, does the mkt sell the stock for a week after it goes ex-dividend ?
Do shares fall more than the dividend declared ie sell on news ?
or is it gen based on future prospects ?

The CIL shares are already down 30 Rs .

No, in general there is no such thing i’ve noticed. Dividends, even large one, don’t make such a big difference to buyers or sellers…afaik, in India.

After dividend declaration if the stock is down than are any chances that in near future it will recover from the earlier price .

Also If a investor sells after the Record date than he can gain only the dividend amount . If he thinks so like he earned dividend than he might have lost many opportunities before because his funds got blocked for a long time.

What You say??

Is there more than meets the eye ?
coal india down to 257 from 275 and falling ..

So is it like 304-29=275 Sell on news and strip dividend as the upa govt is among the worst promoters and has presided over the largest decline of psu stock market cap over history =Negative Sentiment = Rs 257