Dividend adjustment on options

[Guest Ryan Thomson]

The info button on index options advises that prices are based on the futures price adjusted for dividends, interest rate etc. How exactly are index futures adjusted for dividends? I know that spread bets on index futures receive an amount equal to the dividend as a payment directly to IG account.

[AndaIG]

 

15 hours ago, Guest Ryan Thomson said:

The info button on index options advises that prices are based on the futures price adjusted for dividends, interest rate etc. How exactly are index futures adjusted for dividends? I know that spread bets on index futures receive an amount equal to the dividend as a payment directly to IG account.

Hi Ryan

Index futures which are dated are not adjusted for dividends as the effect of dividends and interest has already been included in the price. We will thus take the price directly from the exchange and wrap IG spread around that. 

Our cash indices are a synthetic product that is created by IG. To price them we will take the futures price directly from the exchange, we will then make a fair value adjustment(add dividends and deduct interest) to derive a cash price. That is why you will pay interest on a daily basis and have dividend adjustments when trading the cash contract whereas this will not occur on the dated contract. All the best 

Anda