International Securities Exchange, LLC. :: Quotes & Statistics

Dividend Trade Volume

Dividend trade strategies are transacted by certain market makers who try to capture corporate dividend payments when individual customers leave deep-in-the-money call options unexercised on the day prior to a stock’s ex-dividend date.

To capture as much of the dividend as possible, two market makers enter into an agreement to trade deep-in-the-money call options back and forth with each other on the day prior to the ex-dividend date. They take advantage of the fact that individual options traders will fail to exercise their deep in-the-money call options in order to collect the corporate dividend payment themselves. While most professional investors are aware that they should exercise their deep-in-the-money call options to collect a dividend, there are many reasons why individual investors may fail to do so. As a result, individual investors who hold buy-write positions have a much higher chance of being assigned on their short calls – and not collecting the dividend payment. Market Makers who engage in the dividend trade strategy step in and capture the dividend instead, while distorting volume with millions of contracts.

The table below shows the dividend trade volume that is taking place in the industry, and its impact on reported equity options market share. You can select a time frame for the report using the drop down menus below, starting in June 2010 going forward.

For more information about the mechanics of the dividend trade strategy and its impact on the US options market, read ISE’s Whitepaper on Dividend Trade Strategies in the US Options Industry.

Dividend trade strategies only occur on floor-based exchanges that have exchange fee caps in place, and the only benefit to the exchanges where these trades occur is inflated volume, and as a result, distorted market share. The trades create an optical illusion that gives the exchanges where these trades take place the appearance of liquidity and profitable volume. Dividend trade volume is harmful to the US options industry, and ISE is now publishing daily dividend trade statistics to bring more transparency to the true market dynamics taking place behind volume reported.

The Impact of Dividend Trade Strategies
Dividend trade strategies are harmful to the US options industry for the following reasons:

Individual investors who hold buy-write positions have a much higher chance of being assigned on their short calls – and not collecting the dividend payment. Market Makers who engage in the dividend trade strategy step in and capture the dividend instead.
Dividend trade strategies do nothing more than “paint the tape,” creating the appearance of healthy order flow. For the individual investor who has been trained to associate high trading volume with news in the individual stock, these trades are very misleading.
The strategies distort market share in the US options market, negatively impacting order flow providers who make routing decisions based on liquidity.
The risk of engaging in dividend trade strategies far outweighs any potential profit for those who participate in these transactions. If any kind of mistake is made in the clearing process, a clearing member could be liable for an excessive amount of money. On the other hand, the dividend payments that are actually collected as a result of these transactions are relatively small.

This calculation is based on in-the-money call options with a premium of $0.50 or more, and with trades greater than 1,000 contracts. Only trades with the closest expiration are considered. Exchanges without fee caps are excluded. This dividend trade volume information is presented for informational purposes only. It is provided on an “as is” basis, without warranty of any kind. ISE does not guarantee its accuracy or completeness, and ISE accepts no responsibility for any errors or omissions in, or the consequence of relying or acting upon, this information. 2010 YTD data only is only available from June 2010 onwards.