Scalping PM settled credit spreads

[FSU]

Ironplates, maybe you are misunderstanding me. Yes this contract stops trading at 3pm central time. Yes this contract has no pin risk, as it is cash exercised.

But the value of each contract is based on the settlement price of the SPX on that day. The settlement price is not known at 3pm ct, the SPX will continue to move after the options close, thus affecting the value of the options. So if you sell the 2020 puts at 2:59:59ct, for 1 and the index shows 2019.50 1 second later at 3:00ct you have not locked in .50. The index will continue to tick after 3:00, Even though the options are closed. You have no way to hedge this risk. The index may fall another 1 over the next minute, AFTER the close and you would then have a loss.

 

[Ironplates]

Ironplates, maybe you are misunderstanding me. Yes this contract stops trading at 3pm central time. Yes this contract has no pin risk, as it is cash exercised.

But the value of each contract is based on the settlement price of the SPX on that day. The settlement price is not known at 3pm ct, the SPX will continue to move after the options close, thus affecting the value of the options. So if you sell the 2020 puts at 2:59:59ct, for 1 and the index shows 2019.50 1 second later at 3:00ct you have not locked in .50. The index will continue to tick after 3:00, Even though the options are closed. You have no way to hedge this risk. The index may fall another 1 over the next minute, AFTER the close and you would then have a loss.

Then PM Settled means what? When does this contract settle? 3:15 or 3:00?
Am I lead to believe there is still 15 min of inherent time value in this contract?
The trading desk at TS confirmed with me that the contract settlement close is 3:00ct.

I have heard there are some SPX contracts that close one hour before the market close, but I thought the PM settled contract was not subject to that extended pricing issue.

 

[FSU]

PM settlement just differentiates this contract from the regular SPX which expires in the morning. The PM's will expire the same way as the SPX weeklies. The regular monthly SPX contract will expire on Friday mornings opening price.

Perhaps it is just semantics with the TS trading desk. All I am trying to say is the actual settlement price of the SPX, which the SPXPM option price will be based on, can continue to move after 3pm et.

So there is some "time value' in these options after 3, when they can no longer trade.

 

[Ironplates]

When is settlement? 3:15ct? 5:00ct

So the SPX expires on the Friday morning, but settles after the close.

So this SPX contract includes one entire day of time value when it closes?

I will need to build these considerations into my strike selections.

 

[FSU]

The regular monthly expiration SPX options will settle Friday Morning. It will be based on the Opening price of the SPX stocks on Friday morning. The last day to trade these options is Thursday until 315 et.

The SPXPM and the SPXW (weekly options and quarterlies) will trade until 3et on Friday (the non expiring options will trade until 315 et). The value of these options will be based on the Friday afternoon settlement of the SPX index. This settlement is based on the Friday afternoon closing price of all the SPX stocks. Generally this will be know by around 3:02, but occasionally a stocks closing price may not be determined until slightly later, hence the SPX index may continue to move until slightly after 3pm ct. It doesn't have an entire day of time value as you suggest after it closes, but just a minute or so.

 

[Ironplates]

The regular monthly expiration SPX options will settle Friday Morning. It will be based on the Opening price of the SPX stocks on Friday morning. The last day to trade these options is Thursday until 315 et.

The SPXPM and the SPXW (weekly options and quarterlies) will trade until 3et on Friday (the non expiring options will trade until 315 et). The value of these options will be based on the Friday afternoon settlement of the SPX index. This settlement is based on the Friday afternoon closing price of all the SPX stocks. Generally this will be know by around 3:02, but occasionally a stocks closing price may not be determined until slightly later, hence the SPX index may continue to move until slightly after 3pm ct. It doesn't have an entire day of time value as you suggest after it closes, but just a minute or so.

So the regular monthly expiration SPX options are not subject to Friday's price action because they settle Friday Morning? What time is settlement on Friday Morning?

 

[FSU]

So the regular monthly expiration SPX options are not subject to Friday's price action because they settle Friday Morning? What time is settlement on Friday Morning?

Well, they are subject to Friday mornings price action. There is no "time" of settlement. It is based on Friday mornings opening price of each of the SPX stocks. The actual price is disseminated a couple of hours after the opening.

There is much more risk here than with the other play you mentioned (trading SPXPM spreads just before the close), as you can have a substantial move in the index from Thursday's option close to Friday mornings settlement.