I'm trying to learn how option prices react to Ex-Div events and how the market makers behave too. I was looking to short NAB (NABJ2 July 2950 put), noticed price is about the same as it was yesterday. Today it's exDiv and it dropped almost the full div amount (83c). The market maker offer is always about 2 to 3 cents above fair value (using CommSec options calculator), which is quite a bit considering the option is only in the mid teens (about 14c atm). The MM bid is always about half a cent below the fair value bid too from observation. NAB is above $31 which is a crucial level imo.
I nearly bought yesterday but didn't like the spread or the fact that I had no idea what would happen. Clearly the div is built into the price and just because NAB drops doesn't mean I'll be rich. In fact the option payoff diagramme I tried (peter Hoadley) didn't quite show me that I'd be pretty much in the same place as yesterday- maybe the market makers and the option pricing models prevent easy profits like this. I note IV is low around 14% so i thought this would be a cheap way to short it. I expect NAB to drop below $31 to maybe $30 in the next two to three weeks. I'll see if I can find more info about how div's affect options pricing and how these crooked MM's behave. Any views by people who use options around Div time- simple strategies are easier for me to understand so I just like straight puts.