It looks like Transdigm (TDG) has declared a special dividend of $7.65 to be paid 26th October with record date 16th October, which makes the ex-dividend date tomorrow.
Looking at the Oct puts, the 55 strike put is selling for 4.7 bid 6.2 ask. Since TDG is trading at 49.65, the intrinsic value of the put is 5.35. But there is a huge dividend to be paid, so it looks like one could buy the put for 6 and the stock for 49.65 for a total of 55.65. Tomorrow, one could put the stock for 55 and recover all but 0.65 and receive the dividend of $7.65.
This doesn’t seem possible, so I have a call in to investor relations to see if they are still planning to pay the dividend.
4:10 PM I just spoke to investor relations. He explained to me that Transdigm raised $425 million just to pay this dividend. They were brought public in 2006 by Warburg Pincus. Warburg has no more stock in TDG so they were not the ones insisting on a big payout. I wish he had called before the close, I would have bought more stock and puts.
When companies pay a dividend of more than 10% of the value of the stock (I believe the number is 10%), then it is NOT a regular dividend. The strikes are adjusted. Just as if it were a stock split.
Buying the put and buying the stock here would be a waste of time.
Information on the new strikes should be available at the CBOE, but I did not take the time to look.
BTW. I have been having trouble leaving comments. I find your code far too difficult to read.
Thanks for the pointer. I looked at the CBOE site and they require receipt or delivery of 100 shares plus $765 for each TDG contract. Tomorrow they will create a new series with a new root to distinguish the options from the old series before the special dividend.
I think that I have changed settings so that you will not have to fill out the CAPTCHA. We’ll see if it worked.