If the company unexpectedly announces it will pay its first-ever dividend 3 months from today,you would expect that
A)the call price would increase.
B)the call price would decrease.
C)the call price would not change.
D)the put price would decrease.
E)the put price would not change.

Question

Quizplus · Accepted Answer

If the company announces that it will pay its first-ever dividend, investors may expect the stock price to increase, since it indicates that the company has a stable financial position. As a result, call options would become more valuable, and the call price would increase. However, since the announcement states that the dividend will be paid in 3 months, there is an opportunity for investors to capture the dividend by buying the stock now and holding it until the ex-dividend date. This expectation of increased demand for the stock in the short term can cause the call price to decrease as the implied volatility of the underlying asset decreases.

If the Company Unexpectedly Announces It Will Pay Its First-Ever