Synthetic Dividend

外汇网2021-06-19 13:37:01 72

A type of incoming cash flow that an investor creates with certain financial securities to produce a pidend-like payment stream that resembles the periodic cash receipts from a pidend-paying stock.

Taobiz explains Synthetic Dividend

For example, suppose an investor owns shares in a company that does not pay a quarterly pidend. In order to create a cash-flow stream from the shares, the investor could write covered call options on the underlying stock. By doing so, he or she would receive the option pmiums as an incoming cash flow, but would be obligated to sell the shares to the option-buyer should that person choose to exercise the options.

This situation, while limiting the potential price appciation the investor can realize from his or her own shares, creates a pidend-like cash flow stream.

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