You mean they are trying to call away early my non-existing stock holdings? (this is a call vertical without stocks) If that happens how does it play out?
Selling vertical call spread before ex-dividend date
- Thread starter Pekelo
- Start date
You mean they are trying to call away early my non-existing stock holdings? (this is a call vertical without stocks) If that happens how does it play out?
You will be short stocks and long the other call of the leg (unless you exercise as well, which you should do when the stock rises to a certain level).
So, you will be short stock pre-dividend... which means you will give the dividend to the holder of the stock at ex-dividend (all automatically no worries there).
After dividend you still have the same position, but your delta will be al lot shorter than you at this time anticipate... and stay that way until you buy back the stock.
So, you will be short stock pre-dividend... which means you will give the dividend to the holder of the stock at ex-dividend (all automatically no worries there).
After dividend you still have the same position, but your delta will be al lot shorter than you at this time anticipate... and stay that way until you buy back the stock.
@Pekelo, this is how you could analyze it...
Spot 34.50
Div 0.60
Ex-div spot 33.90
All puts are priced on 33.90
So if the 34.50 call is not exercised... if it were European... market should be 0.14@0.18 (via put call parity).
If that call will be exercised, it is basically a FEB 13 '17 call, with expiry day before dividend... priced on spot = 34.50... with value of 0.21@0.25.
The call will (should) be exercised when it's ITM... AND... the value of the 34.50 put is lower than the dividend, because by exercising you give up any leftover time premium... you only get intrinsic.
So when the value of the 34.50 put drop to below 0.60 you will be at risk of being assigned. That put has about 1ct theta, so it should lose another 3 or 4 cents until dividend. So when BP reaches 34.70 you will likely be assigned. Around 35.15 I would say you should exercise your 35 call.
This depends as well on costs etc, but this is the general idea.
Example on your 35 call. At spot of 35.15 this is worth 0.15. but if you don't exercise, I would say that call only is worth only about 11 cents at that time...
Spot 34.50
Div 0.60
Ex-div spot 33.90
All puts are priced on 33.90
So if the 34.50 call is not exercised... if it were European... market should be 0.14@0.18 (via put call parity).
If that call will be exercised, it is basically a FEB 13 '17 call, with expiry day before dividend... priced on spot = 34.50... with value of 0.21@0.25.
The call will (should) be exercised when it's ITM... AND... the value of the 34.50 put is lower than the dividend, because by exercising you give up any leftover time premium... you only get intrinsic.
So when the value of the 34.50 put drop to below 0.60 you will be at risk of being assigned. That put has about 1ct theta, so it should lose another 3 or 4 cents until dividend. So when BP reaches 34.70 you will likely be assigned. Around 35.15 I would say you should exercise your 35 call.
This depends as well on costs etc, but this is the general idea.
Example on your 35 call. At spot of 35.15 this is worth 0.15. but if you don't exercise, I would say that call only is worth only about 11 cents at that time...
I actually had this vertical on, but because of the reason you stated, I closed the short call around noon yesterday. BP dropped 80 cents compared to the 60 cents dividend. Now we shall see how much it recovers until Friday.
You are right, because of this calling away possibility, the strategy doesn't work with front end options. And if I use 35+ DTE there is too much time to recover.
Well, another strategy hits the bin....
So I played the vertical short call on GSK, and I am trying to figure out the best outcome. I sold the 40 and bought the 41 strikes for 41 cents expiring next week, after the Tuesday dividend play. Of course GSK moved up in the main time and now around 41.25
So today I rolled the position by selling the 41 and buying the 42, which zerod down my 41 position leaving me with a sold 40 and bought 42 with another 25 cents credit. As the 40 call is in the money, I expect it to be called away on Tuesday, and I would end up being short the stock, just when it is about to drop.
If on Tuesday the stock drops 20-30 cents, I would just by back the calls and call it an education.
Any comments on the plan?
Edit: Forgot to mention but I had 40.5 puts expiring today and I was expecting to get into the stock by using this put, of course Mr. Market had another plans, but that added to my credits 31 cents.
So today I rolled the position by selling the 41 and buying the 42, which zerod down my 41 position leaving me with a sold 40 and bought 42 with another 25 cents credit. As the 40 call is in the money, I expect it to be called away on Tuesday, and I would end up being short the stock, just when it is about to drop.
If on Tuesday the stock drops 20-30 cents, I would just by back the calls and call it an education.
Any comments on the plan?
Edit: Forgot to mention but I had 40.5 puts expiring today and I was expecting to get into the stock by using this put, of course Mr. Market had another plans, but that added to my credits 31 cents.
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Hi
I have found this thread and I liked very much, very interesting.
Next month it will be the first time that the ex dividend date will be in the middle of my strategy. I began trading spy two months ago.
So a I have Many doubts about how it's going to be.
_With calls it seems not possible to get anything more than the extrinsec value. It is easy with money, but not so easy without money.
Observe the high OI in itm calls.
_With puts it is more interesting. They have a huge extrinsec value but it is difficult to get it.
_I am very curious about what's going to happen with the itm puts that I sold. It would be good to be able to close them the day before ex dividend date. But I think the extrinsec value will increase
as the date approaches, the opposite of what would be logical.
Question , Why all itm puts doesn't have the same extrinsec value? All delta 1 puts will decrease by the amount of the dividend on the ex-dividend date.
And why they have that extrinsec value and not another? The extrinsec value it is supposed to be the amount of the future dividend. Today the extrinsec value is less than 1 in a lot of itm puts.
If I am an itm put seller, why I should sell extrinsic value bellow the estimated dividend?
I don't know if it is a declaration day for Spy or the dividend only is known on the exdividend date.
I don't know if there are any estimates of how much the dividend will be.
I am still thinking how to hedge the sale of puts.
I have found this thread and I liked very much, very interesting.
Next month it will be the first time that the ex dividend date will be in the middle of my strategy. I began trading spy two months ago.
So a I have Many doubts about how it's going to be.
_With calls it seems not possible to get anything more than the extrinsec value. It is easy with money, but not so easy without money.
Observe the high OI in itm calls.
_With puts it is more interesting. They have a huge extrinsec value but it is difficult to get it.
_I am very curious about what's going to happen with the itm puts that I sold. It would be good to be able to close them the day before ex dividend date. But I think the extrinsec value will increase
as the date approaches, the opposite of what would be logical.
Question , Why all itm puts doesn't have the same extrinsec value? All delta 1 puts will decrease by the amount of the dividend on the ex-dividend date.
And why they have that extrinsec value and not another? The extrinsec value it is supposed to be the amount of the future dividend. Today the extrinsec value is less than 1 in a lot of itm puts.
If I am an itm put seller, why I should sell extrinsic value bellow the estimated dividend?
I don't know if it is a declaration day for Spy or the dividend only is known on the exdividend date.
I don't know if there are any estimates of how much the dividend will be.
I am still thinking how to hedge the sale of puts.
Puts are all based on the ex-dividend price... so that would be Spot-Dividend... That's probably why you think they have a huge extrinsic value, which they don't.
Extrinsic value will not increase.. because why would it? There is nothing to be gained here.
Re-analyze with spot - dividend and it will be more clear to you.
As for ITM calls, some are based on the current Spot, and those will/should be exercised before dividend. ATM and OTM calls are all based on Spot-Dividend as well, like the puts... maybe with a little bit of extra premium because of the exercise option you have before dividend.
Don't exercise your puts before dividend!!!
Uhm, IB says dividend SPY is 1.141 USD at JUN 16 '17... but that's probably not correct... I would say SPY has the ex-date at/around the same dates every time, probably quite stable dividends, since they reflect the dividends from the S&P500.
No, please do. Do not exercise your calls before dividend!!!
