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Please explain the relationship between dividend amount, stock price, and option value?
4) Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? There seems to be confusion behind this question.  A company does not set the price for their stock, so they can't "reduce" it either.  In fact, nobody sets "the price" for a stock. The price you see reported is simply the last price that the stock was traded at.  That trade was just one particular trade in a whole sequence of trades.  The price used for the trade is simply the price which the particular buyer and particular seller agreed to for that particular trade.  (No agreement, well then, no trade.)  There's no authority for the price other than the collection of all buyers and sellers. So what happens when Nokia declares a 55 cent dividend?  When they declare there is to be a dividend, they state the record date, which is the date which determines who will get the dividend: the owners of the shares on that date are the people who get the dividend payment.  The stock exchanges need to account for the payment so that investors know who gets it and who doesn't, so they set the ex dividend date, which is the date on which trades of the stock will first trade without the right to receive the dividend payment.  (Ex-dividend is usually about 2 days before record date.)  These dates are established well before they occur so all market participants can know exactly when this change in value will occur. When trading on ex dividend day begins, there is no authority to set a "different" price than the previous day's closing price.  What happens is that all (knowledgeable) market participants know that today Nokia is trading without the payment 55 cents that buyers the previous day get.  So what do they do?  They take that into consideration when they make an offer to buy stock, and probably end up offering a price that is about 55 cents less than they would have otherwise.  Similarly, sellers know they will be getting that 55 cents, so when they choose a price to offer their stock at, it will likely be about that much less than they would have asked for otherwise.