Dividends can have a significant effect on the pricing and performance of options. On the ex-dividend date of a stock, the stock price is expected to decline by approximately the amount of the dividend. This expected decrease in stock price is incorporated in the pricing of options.
Call options, which have a positive delta, will tend to lose value at the same rate as the stock declines due to an ex-dividend. Put options, which have a negative delta, will tend to gain value as the stock declines due to an ex-dividend. In general, call options will be priced lower and put options will be priced higher for dividend-paying stocks relative to non-dividend-paying stocks.
Dividends are closely watched by options market makers. If a dividend is announced that differs from the expected dividend, market makers may quickly adjust their option prices accordingly. The sensitivity of an option's price to dividend changes is often called "Dividend Delta".
Dividend-paying stocks can create unique opportunities for options traders. For example, some investors will use covered calls or buy-writes to generate income from their stock positions while also collecting dividends. Others may attempt to capture dividends by exercising in-the-money call options just before the ex-dividend date. Professional traders will often execute dividend capture strategies using options to attempt to isolate and profit from dividends.