Will AAPL Declare a Dividend?
Will AAPL Declare a Dividend?
After the giant earnings release in AAPL last week I thought it fitting to ponder if AAPL will payout some of that largesse they have squirreled away. Maybe before looking at what the actual markets think, letís examine the rule for dividends.
First- Call values do not like dividends and put values do. A dividend increase will decrease call values and increase put values.
Second- A special one-time dividend will not change the value of an option. Why? Because the OCC changed the rules and the option strikes are adjusted down to reflect the dividend value. The price threshold is $12.50 per contract (an eighth in the old fraction days). This is colloquially known as the Microsoft rule but more on that later.
Third- A company announcing a regular dividend can affect option prices, since it is not ìspecial,î although the OCC ultimately has discretion over all these decisions. For more information go to, http://www.optionsclearing.com/components/docs/market-data/infomemos/2009/jan/25361.pdf)
The ìMicrosoft Ruleî came about after MSFT did the unthinkable in 2004 and declared a $3.00 special dividend. There OCC ruled on adjustments to ETFís even though they did not meet the ì10% Ruleî at the time. The OCC has since mostly decided to protect option holders from getting hurt on odd dividends (that means adjusting strikes so there is no net option price effect) and that is the current trend. For MSFT, the name has not done much since they started paying dividends. A long term investor has done ok if you bought the dips and reinvested dividends but MSFT really has not done much, stockwise since 2004. Buying AAPL in 2004 of course is a different story. I am not sure paying dividends is great sign for growth.
As far as the option market, the AAPL Apr 455 combo is priced at .13 over parity (which takes the cost of carry into account) which pretty much means the current option market is pricing the chance of a dividend stream at 0. The near brush with death in the 1990ís probably instilled a need for cash at AAPL as they had to go raise equity from MSFT. For now the need for that is pretty slim.
Here is an idea- AAPL should just go buy Greece and manage the country themselves and make it a giant iStore. Think of the rally!
Call holders fear not in AAPL, just enjoy the ride. The implied volatility is starting to creep up again.
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
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