At 9:30 AM New York time, Microsoft opened today with a technical discount of $0.91 per share. No crash, no panic, just standard mechanics: ex-dividend day. Those who owned the stock yesterday collect the dividend. Those who buy today do not.
For stock holders, this is a non-event. For options traders, it is an invisible cost factor that can shift thousands in P&L – depending on whether you are on the right or wrong side of the math.
What Happens to Calls and Puts on Ex-Dividend Day
Options pricing models (Black-Scholes and related variants) anticipate dividend payments and factor them into extrinsic value. On ex-dividend day, that expectation disappears. Effect:
- Calls lose $0.91 of extrinsic value (ceteris paribus)
- Puts gain $0.91 of extrinsic value (ceteris paribus)
For Microsoft with a quarterly dividend of $0.91, this is not trivial. A call with Delta 0.50 loses roughly $0.45 – not because of market movement, but because of calendar mechanics. A put with the same Delta gains $0.45.
The Trap for Uninformed Traders
Many retail traders see the morning after ex-dividend:
- MSFT stock -0.2% (slight decline)
- Their calls -4% (much steeper)
And think: The market is against me. Wrong. The market barely moved. The dividend adjustment compressed the call price.
At the same time, put holders enjoy a seemingly unexplained gain – even though the stock did not move. Again: no magic, just options math.
What Professionals Do
Institutional options traders and market makers factor ex-dividend dates into their positions:
- Covered call sellers avoid strikes near the money just before ex-dividend (early exercise risk).
- Put sellers prefer ex-dividend weeks because puts are temporarily more expensive (higher extrinsic value before the day).
- Call buyers wait until after ex-dividend when calls are relatively cheaper.
For Microsoft with four dividend payments per year (February, May, August, November), this pattern repeats quarterly. Those who know the dates can systematically find cheaper entries.
Today Numbers
Microsoft closed yesterday at $423.63. Today it opened at $422.91 – a discount of $0.72 (the $0.91 dividend minus slight market movement). Calls with June expiry and $425 strike lost an average of $1.20 in value, even though the stock fell only minimally. Puts with the same strike gained $0.85.
This is neither fair nor unfair. It is the structure of options as derivatives on dividend-paying stocks.
Takeaway for Options Traders
- Check ex-dividend dates before every trade on dividend-heavy stocks (MSFT, AAPL, KO, JNJ).
- Do not expect fair behavior on ex-dividend day – your P&L change can exceed the stock movement.
- Use the mechanics: Sell puts before ex-dividend (higher premiums), buy calls after (lower prices).
Those who understand dividend math are not trading against an invisible enemy. They are trading with a predictable edge.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.