To give an example, I just bought share of $BMY which currently trades at $40.05 with an ex dividend date of July 5 with a $0.60 dividend. I happen to believe BMY will spike up soon but that’s for another discussion.
From what I’ve read I should expect the price to open at approx $39.45 on Friday due to this dividend being paid out. If most people are having to pay tax on this dividend, then why do people hold through an ex-dividend date? The net gain after taxes is less than the amount the stock will drop.
A few more questions about this: do options properly price in this expected drop, if not, what is the arbitrage opportunity? Are there any trends with price action leading up to ex-dividend date?
Thanks to anyone who takes some time to explain 🙂
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