What is the potential effect on the stock’s volatility and options pricing?

Effect on volatility and options pricing

A newly‑announced dividend creates a predictable, one‑time price drop on the ex‑dividend date (the “cash‑flow shock”), which in turn spikes short‑term volatility. The market will already have priced in the expected dividend‑yield component (≈ $0.22‑$0.30 per share for DLR, based on the announced payout) into the forward price, so the forward‑price adjustment in the Black‑Scholes model will be:

[
F = S_0 \, e^{(r - q)T}
]

where (q) is the annualized dividend yield. As the ex‑date approaches the dividend‑adjusted forward price will drift down by roughly the dividend amount, and implied volatility (IV) will tend to rise for the near‑term expiries because market makers price in the risk of the actual price drop (the “dividend risk”) and the uncertainty of the exact ex‑date settlement. In practice you’ll see a modest bump in IV for 0‑30‑day options, especially on the call side (which loses value) and a corresponding rise in the put‑call parity implied‑vol spread.

Trading implications

1. Option pricing – Call options will be cheaper (higher implied dividend discount) and puts more expensive. If you anticipate a rally that offsets the dividend‑driven dip (e.g., strong earnings or a data‑center demand catalyst), a long call or bull‑spread before the ex‑date can capture the expected upside while the dividend‑adjusted forward price is already reduced.
   
2. Volatility play – The spike in IV around the ex‑div date creates a short‑volatility opportunity after the dividend is paid and the price drop becomes a known quantity. Traders can sell near‑term straddles or strangles after the ex‑date when IV contracts back to baseline.
   
3. Risk management – Adjust delta‑hedging for the anticipated dividend drop: reduce long‑call delta or add a short‑call position to hedge the anticipated price drop. Keep an eye on the implied‑volatility term structure; a steepening term‑structure (higher IV in the first 30 days) indicates the market expects a larger short‑term move, which can be exploited with calendar spreads (sell near‑term, buy longer‑term) to capture the IV roll‑down.
   

In short, the dividend announcement will compress the forward price, lift short‑term IV, make calls cheaper and puts richer. Use that window to either capture the dividend‑driven move with directional options or sell the volatility premium after the ex‑date when the risk premium evaporates.