How might the dividend announcement affect the pricing and implied volatility of PATK's options contracts?

Impact on Option Prices

A cash dividend reduces the expected forward price of the underlying equity by the present‑value of the payout. With a $0.40 quarterly dividend on a stock that typically trades around $30–$35, the ex‑dividend adjustment is roughly 1½ % of the share price. In option‑pricing terms this shifts the Black‑Scholes “forward” down by the same amount, which depresses the value of out‑of‑the‑money and at‑the‑money calls while boosting the value of corresponding puts. The effect is most pronounced for short‑dated contracts that expire before or shortly after the ex‑dividend date (August 14), because the dividend is a larger proportion of the remaining time value. For longer‑dated strikes the impact is diluted by the longer time horizon but still observable in the forward‑price curve used by market makers.

Implied‑Volatility (IV) and Trading Strategies

Because the dividend is known and already factored into most option prices (the market’s “dividend yield” input), the implied volatility of near‑term strikes will tend to compress immediately after the ex‑div date as the dividend uncertainty evaporates. Traders often see a small, temporary drop in the IV surface (especially on the call side) around the ex‑div date, followed by a re‑version to the term‑structure level. The dividend also creates a modest skew: puts tend to carry slightly higher IV than calls at the same moneyness, reflecting the increased downside protection value.

Actionable Take‑aways

1. Pre‑ex‑div positioning – If you anticipate a modest price drop on the ex‑date, consider buying short‑dated puts or selling call spreads that expire just before August 14 to capture the dividend‑adjusted price move. Ensure you factor the $0.40 cash‑out in your breakeven calculations.
   
2. Post‑ex‑div roll – After the ex‑div date, the forward price is lower, and the IV for the same strikes typically contracts. This creates opportunities for calendar spreads: sell near‑term options (now cheaper, lower IV) and buy longer‑dated contracts (higher IV) to capture the IV “re‑pricing” that often occurs as market makers re‑balance their delta‑hedge exposures.
   
3. Monitor the IV skew – A pronounced put‑call skew after the dividend suggests market participants are pricing additional downside risk (e.g., earnings or guidance risk). If the skew widens beyond typical levels, consider a long straddle or strangle across the ex‑div date to profit from a potential larger move than the dividend alone would justify.

Overall, the $0.40 dividend will shave ~1–2 % off the forward price, depress near‑term call IV, and lift put IV. Traders who align option strikes and expirations around the ex‑date can capture the dividend‑induced price drift and the associated IV normalization.