Attention, those of you who own MDC Holdings, Inc. (MDC): MDC has announced a special 8% dividend consisting of additional shares of MDC. More information on the dividend can be found here. As part of this dividend, holders of MDC will receive 8 shares of MDC for every 100 shares of MDC owned on the date of record, March 3rd.
As a result, the strike prices for open March options on MDC have been adjusted down to compensate. For example, a client who sold a $60 call and a $50 put on MDC will now have a $55.56 call and a $46.30 put. You should see this adjustment made to the options at your brokerage prior to expiration on March 19th. We do not recommend selling the extra MDC shares until well after expiration to avoid any settlement issues.
At this time, there is no need for action to be taken on MDC. If your call options are exercised at expiration, your shares will be assigned and removed from your account. Any loss in the sale of stock that you incur at that point will be made up when you receive the dividend payment itself. You may calculate the total profit on the position by using the original call strike price.