Dear FSU, you're right about the other posters syggestions that a new position would ve created.... however seems like I'm missing something in your explanation... if I want to avoind the div charge, then you suggested to exsit the position as a spread - meaning place a complex order of buying covered puts (buy stocks+the puts) , right? however, why do u say I should not be concerned about it since the puts will drop by the same amount? As I said before, those "leftovers" are part of a prvious position that had 30-40 legs, those puts were written in order to earn the premium against the short stock, just "leftovers"... so again, how can I avoid the div charge andor minimize the loss of closing this position? (btw, i do have more leftovers such as +72 call135 and +25 call138, but i consider them like 0), in addition why I would be short synth on cal135, by closing the short stock and short puts I would be totaly flat, no position....?....
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Position Question\Advice needes
- Thread starter orimsh
- Start date
Dear FSU, you're right about the other posters syggestions that a new position would ve created.... however seems like I'm missing something in your explanation... if I want to avoind the div charge, then you suggested to exsit the position as a spread - meaning place a complex order of buying covered puts (buy stocks+the puts) , right? however, why do u say I should not be concerned about it since the puts will drop by the same amount? As I said before, those "leftovers" are part of a prvious position that had 30-40 legs, those puts were written in order to earn the premium against the short stock, just "leftovers"... so again, how can I avoid the div charge andor minimize the loss of closing this position? (btw, i do have more leftovers such as +72 call135 and +25 call138, but i consider them like 0), in addition why I would be short synth on cal135, by closing the short stock and short puts I would be totaly flat, no position....?....
Quote from orimsh:
Dear FSU, you're right about the other posters syggestions that a new position would ve created.... however seems like I'm missing something in your explanation... if I want to avoind the div charge, then you suggested to exsit the position as a spread - meaning place a complex order of buying covered puts (buy stocks+the puts) , right? however, why do u say I should not be concerned about it since the puts will drop by the same amount? As I said before, those "leftovers" are part of a prvious position that had 30-40 legs, those puts were written in order to earn the premium against the short stock, just "leftovers"... so again, how can I avoid the div charge andor minimize the loss of closing this position? (btw, i do have more leftovers such as +72 call135 and +25 call138, but i consider them like 0), in addition why I would be short synth on cal135, by closing the short stock and short puts I would be totaly flat, no position....?....
It doesn't matter how the position started, it is worth a certain amount now. You are now short deep puts against short stock. Since you already are long the 135 calls, you have no risk. You are in a position called a reversal.
The price of a dividend is written into the puts you are short. I don't know how else to say it. What ever you pay in a dividend, you will gain in your short puts. Your position is worth exactly the same before or after the dividend. If this wasn't the case someone could simply buy spy and buy deep puts before a dividend and make free money.
If you cover the position in the way I suggested you will lose transaction costs and whatever you pay over fair value for your puts, probably around 5 cents max. So if you cover you will lose $300 to $400 vs just leaving it alone and allowing it to exercise off your sheets.
One more way to look at it is your short puts are trading with premium in them. After the dividend they will trade at almost parity.
Quote from Kedwards:
hey orimsh, whats the volume and open interest in the put strikes you are trying to get out of? Have you tried to put any limit orders between the spread?
Open Int are OK (40k and 80k) but volume is around 0, who trades these puts...?.... FSU is right regarding closing it as a spread