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Author: randyquick Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 265925  
Subject: options converted for dividends??? Date: 8/17/2005 10:23 AM
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hi Fools,
This may be answered simply...
and that's why I'm here, I surely do not know.

If I buy options in microsoft and they pay another special dividend
do I have the right to convert my option, as a proxy to the stock,
and get paid that dividend?

I believe that time is soon coming so I either
buy the stock OR
buy a larger bundle o' stock via options held...

Lead on wise Fools.

Best Regards,
randyquick.
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Author: Rhodnius Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 222897 of 265925
Subject: Re: options converted for dividends??? Date: 8/17/2005 11:32 AM
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Hi Randy,

I can't answer on the options question, but I can say this about dividends. A dividend payment does not actually make you any money. Whenever any stock pays out a dividend, its stock price drops by the amount of the dividend. In Microsoft's case, suppose they pay out another $3 per share special dividend for a (rough) total of $3 billion. That means that the company now possesses $3 billion less cash -- so the value of Microsoft's business has dropped by $3 billion. In turn, that means that the share price must drop by a proportionate amount of $3.

The value of the shares before the dividend payment equals the cash payment plus the share value after the payment. It's a zero-sum game.

In short, you can't make money by buying a stock to chase a specific dividend payment.

Hope that helps,
- Erik

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Author: Latinus Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 222997 of 265925
Subject: Re: options converted for dividends??? Date: 8/21/2005 9:27 PM
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Erik wrote
Whenever any stock pays out a dividend, its stock price drops by the amount of the dividend.
-
I feel impelled to modify the above:
Whenever any stock goes ex-dividend, its stock price tends to drop by an amount approximately equal to the dividend.
-
You can find enough data on Yahoo to see what actually happens.

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