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If options expire on ex-div date?
- Thread starter 1a2b3cppp
- Start date
Quote from 1a2b3cppp:
...what are the chances of that happening?
It would be easy to analyze, had you included the strike.
If the call is OTM, then you can assume that it won't be exercised.
If the call is ITM with little or no tv by late trading Thursday, then assume that it will be exercised.
If the call is near ATM or ITM with tv, then it's likely that it won't be exercised, but you can't be certain here.
There is a considerable window for exercise in AH, so if SPY should fluctuate in that direction, then ITM calls with tv may be exercised. Or the call may be borderline, where some are exercised and some aren't.
Your decision should be made no later than close of option trading Thurs. If the call is already ITM and no tv, then you are already near max. profit. You may consider closing it, rolling it or hedging it. Get rid of the risk of the short call.
Anyone know more details about this?
http://online.wsj.com/article/SB10000872396390444620104578011112447236182.html
http://online.wsj.com/article/SB10000872396390444620104578011112447236182.html
Bank of America Merrill Lynch on Friday sustained a loss approaching $10 million because of an error handling a controversial type of stock-option trading, according to people with knowledge of the issue.
The error was seen tied to "dividend trades" that have stirred controversy in the options industry in recent years, according to traders.
The strategy involves placing trades the day before a company's or exchange-traded fund issuer's shares go "ex-dividend."
...
Critics of the strategy charge that it takes advantage of investors that haven't exercised their call options before the ex-dividend date, and don't have the resources to transact big options plays.
A notice from stock-options analysis firm Trade Alert LLC on Friday linked the error to options contracts on the SPDR exchange-traded fund, which tabulated recipients of its dividend Friday.
Quote from loufah:
Anyone know more details about this?
http://online.wsj.com/article/SB10000872396390444620104578011112447236182.html
I don't know, but it kinda sounds like they missed the deadline exercising their own long calls.
Actually, it's a bona fide strategy utilized by large prop groups. There are a few variations, but the idea overall is to be short of whole bunch of deep ITM calls on the night prior to ex-div date and holding full delta against them in one or another form. On large ETFs, a fair number of people forgets/forgoes early-X, e.g. on SPYs it's about 8-10% of total position that do not get early X-ed.Quote from donnap:
Not likely. The MM probably gets a few, though.
I think the f*ck-up at BoAML was on the back of a variation where you buy and sell the same calls in two different accounts, early X the long position and hope for a high enough idiot factor on the short position. In this case, I would not be surprised if it was a pure operational SNAFU.
Quote from sle:
Actually, it's a bona fide strategy utilized by large prop groups. There are a few variations, but the idea overall is to be short of whole bunch of deep ITM calls on the night prior to ex-div date and holding full delta against them in one or another form. On large ETFs, a fair number of people forgets/forgoes early-X, e.g. on SPYs it's about 8-10% of total position that do not get early X-ed.
I think the f*ck-up at BoAML was on the back of a variation where you buy and sell the same calls in two different accounts, early X the long position and hope for a high enough idiot factor on the short position. In this case, I would not be surprised if it was a pure operational SNAFU.
I never said that it wasn't a bona fide strategy. "Not likely" refers to the probability that OP might get some. You act as though, somehow, you are contradicting what I wrote.
Is "a pure operational SNAFU" a fancy way of saying that they didn't exercise their calls?
Of course I am contradicting you. Probability of OP getting some un-X calls is about 1:10, like everyone else. If you are a long a 100k, chances are 8-10k are not gonna get X-ed, if you do it every expiration. There is no real difference if you sell a large block or bleed them out 1 lot at a time. You just have to be short enough contracts. The main limitation in this trade is the balance sheet cost, which is why most people involved in these trades are bank prop desks.Quote from donnap:
I never said that it wasn't a bona fide strategy. "Not likely" refers to the probability that OP might get some. You act as though, somehow, you are contradicting what I wrote.
PS. Explain to me the whole attitude thing here - aren't we here to learn from each other? If I am contradicting someone or arguing, it's because it kinda helps to know what's true and what is not, what works and what does not.
Quote from sle:
Of course I am contradicting you. Probability of OP getting some un-X calls is about 1:10, like everyone else. If you are a long a 100k, chances are 8-10k are not gonna get X-ed, if you do it every expiration. There is no real difference if you sell a large block or bleed them out 1 lot at a time. You just have to be short enough contracts. The main limitation in this trade is the balance sheet cost, which is why most people involved in these trades are bank prop desks.
PS. Explain to me the whole attitude thing here - aren't we here to learn from each other? If I am contradicting someone or arguing, it's because it kinda helps to know what's true and what is not, what works and what does not.
Execution costs (commission and bid/offer) are an issue too.