209 puts ask less than intrinsic why?

P

prc117f

The 209 puts that expire today had an ask of 97 cents but the intrinsic value was 105 cents.

Why would that be the case? if it has zero extrinsic value, the last ask before closing should match intrinsic right?

final print was 83 cents.

final market print for the SPY was 207.95
 
As Yaris mentioned, SPY options trade until 4:15et. You are seeing the 4pm "closing" price on the SPY. SPY will continue to trade in the after market.

This is one of the risks/opportunities having short/long options on expiration. You may be short an out of the money put that went out at almost zero. Thinking that it will expire out of the money, you forget about it, but SPY drops after hours and you end up getting a surprise assignment. Long holders of the options have until 530et to decide whether to exercise their options.
 
It is my understanding that expiring SPY option stop trading at 4pm est, not 4:15pm. Other SPY options continue to trade until 4:15pm. In fact when option stop trading, the last market at the EOD time, 4pm, is frozen and can't change or be traded electronically. I have not looked at the time and sales from friday or the current SPY or option market at that time. What is most likely, if your account of the EOD is accurate, is that at 3:59:59, SPY was trading above 209. Then after or at 4:00:00pm, the SPY had a closing print on the primary exchange lower than 209 from an imbalance. This would cause the situation you described.

Bob
 
prc117f said:
The 209 puts that expire today had an ask of 97 cents but the intrinsic value was 105 cents.

Why would that be the case? if it has zero extrinsic value, the last ask before closing should match intrinsic right?

final print was 83 cents.

final market print for the SPY was 207.95
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Could it be that someone was a motivated seller and didn't care about the $0.08? The arbitrage opportunity would be only $8.00 or less.

  • Buy the 209 puts at $0.97
  • Buy 100 SPY at $207.95
  • Debit $20,892
  • Auto exercise. Sell-to-close the 100 shares of SPY at $209.00 x 100 = $20,900.
  • P/L $8.00 (commissions not included)



:)
 
rmorse said:
Eight cents vig on a non-risk trade is a lot of money. When I was a mm I'd do it for .03 until my server broke.
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Maybe an MM might be able to take advantage of the arbitrage opportunity - if it did exist as the OP posted. BUT for a retail trader (99% of ET'ers) that $8.00 would get whittled down with commissions. IMO .... Not worth the effort.


:)
 
The reality is that arbs like that don't exist for more than a fraction of a second. You need an automated system to take advantage of it and it's likely someone else will be faster. However, I have clients that rebate trade options. The rebates are less than a penny. I think there are many non-BD traders doing this without automation.
 
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