Understanding Dividend effect on F&O Adjustment
When a company announces a corporate action like a dividend, it might impact your Futures & Options (F&O) positions. If you're wondering why your Unrealized Profit & Loss (P&L) looks inflated or incorrect after such an event, you're not alone.
This happens because, in the F&O segment, certain corporate actions trigger changes in strike price and contract value, and these adjustments are mandated by the exchange. On Kotak Neo, we handle these automatically, so your final P&L remains accurate.
What Happened?
ABC Share: ₹16 per share dividend announced.
📅 F&O Strike Adjustment Effective Date: 26th August 2025.
Shareholders will receive ₹16 in their registered bank account for every share held.
These dividends are classified as extraordinary dividends, which means F&O contract adjustments apply.
In the F&O segment, this leads to changes in:
- Strike price
- Contract value
These adjustments are mandated by the exchange and are carried out automatically.
How We Handle This in Neo
Whenever a corporate action occurs, your F&O position undergoes two automatic adjustments:
- Knock-off the old position: We close your existing position with a Buy/Sell entry at zero cost, which books your profit/loss till that point.
- Re-enter the adjusted position: A new position is added based on the revised strike price, also at zero cost.
This ensures your position aligns with the new contract without impacting your actual gains.
Why Does My Unrealized P&L Look Wrong?
Let’s break it down using a real example 👇
Example: ABC Ltd. Option Position before Dividend
| Contract Type | Strike Price | Action | Quantity | Price | Premium Amount |
|---|---|---|---|---|---|
Option (CE) | 360 | SELL | 1000 | ₹20 | ₹20,000 |
Unrealized P&L Matches live market price
After Dividend Adjustment (16 per share)
Adjustment Factor: Price adjustment as per exchange guidelines.
| Action | Quantity | Strike | Price | Amount |
|---|---|---|---|---|
Adjustment BUY (nullify) | 1000 | 360 | ₹0 | ₹20,000 Profit Booked |
Adjustment SELL (re-enter) | 1000 | 344 | ₹0 | Unrealized P&L starts fresh |
Unrealized profit after dividend may look inflated as your cost price is set to zero (for technical accounting reasons). But don’t worry—it’s only temporary.
After You Close the Position
Let’s say you BUY back the 344 CE at ₹15.00:
| Action | Quantity | Price | Amount | Amount |
|---|---|---|---|---|
Square off Position | 1000 | ₹15 | ₹15,000 (Amount Paid) | ₹20,000 Profit Booked |
Final Realized P&L | ₹5,000 (₹20,000 - ₹15,000) | Unrealized P&L starts fresh |
Your actual P&L is correct and adjusted automatically.
What You Should Know:
- Unrealized P&L may look unusual right after the bonus adjustment.
- Final P&L is always accurate once the trade is closed.
- You don’t need to take any action – adjustments are automated and fully compliant with exchange rules.
- Full transparency – You can view all entries in your transaction history & contract note.