Options Action

Dividend Increase For JPMorgan?

While market pundits are pouncing on the decline in the VIX today (something we noted on this blog last week), a far more interesting development is taking hold in options land. Could JPMorgan be on the verge of raising its dividend?

Some options traders seem to think so.

"Longer-dated prices for JPMorgan options are calling for a five-fold increase for the company's dividend," said Cantor Fitzgerald's and "Options Action" contributor Mike Khouw.

When a stock pays a dividend, the share price tends to fall by the amount paid out to shareholders. That movement is reflected in prices for that company's puts and calls.

Currently, options traders are expecting JPMorgan to increase its quarterly dividend to $0.25 by the beginning of 2011. That works out to a dollar per share, or a dividend yield of 2.2% at today's share price.

With many of the large banks having already repaid TARP, some market participants expect more dividend increases to come.

"I think this is the first step in large commercial banks restoring their dividends," said Credit Suisse's Moshe Orenbuch. "I think JPMorgan and US Bancorp will be the first to do so."


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