Very good point. I should take a look next time I am in the same situation. Thanks.
Simple Option strategy - input requested
- Thread starter misterkel
- Start date
Hi
The last Spy ex dividend date wasn't very good for me. It was the first time I had a position envolving the ex-divend.
Now I am observing a high OI in deep ITM puts for the expiration of Sep. High compared to the same strike for the next two monthly expirations.
The extrinsic value of these puts will be aprox. 1,2 the day before ex-dividend date but now is 0,30. The puts
So maybe it is a good idea to buy some itm puts and hedge buying spy, and sell the puts and the spy the day before ex-dividend.
Or maybe not. Buy the 300 put is 5.900,00 and buy 100 Spy is 12.000,00 , so 90/17.900 a 3% annualized yield. It seems very little.
But someone is going for it, I wonder Who are they.
Also it will be interesting observe how the extrinsic value goes from 0,30 to 1,20 and the timmings. The puts are now priced against the spot Spy
but somehow they will be priced against the spot SPY less dividends. So maybe interesting.
The last Spy ex dividend date wasn't very good for me. It was the first time I had a position envolving the ex-divend.
Now I am observing a high OI in deep ITM puts for the expiration of Sep. High compared to the same strike for the next two monthly expirations.
The extrinsic value of these puts will be aprox. 1,2 the day before ex-dividend date but now is 0,30. The puts
So maybe it is a good idea to buy some itm puts and hedge buying spy, and sell the puts and the spy the day before ex-dividend.
Or maybe not. Buy the 300 put is 5.900,00 and buy 100 Spy is 12.000,00 , so 90/17.900 a 3% annualized yield. It seems very little.
But someone is going for it, I wonder Who are they.
Also it will be interesting observe how the extrinsic value goes from 0,30 to 1,20 and the timmings. The puts are now priced against the spot Spy
but somehow they will be priced against the spot SPY less dividends. So maybe interesting.
I'll give you an example.....
SPY sep 300 put = 59.44 @ 59.85 at the close, at which time SPY spot was at 240.64. Total investment at midpoint price would be 59.65+240.64=300.30
Treasuries yield about 1% for that maturity... so there's about 58 of interest involved... (1% on 300.30 over 70 days).
300-(240.64+0.58)=58.79 would be the price of the put without any dividend. Since there's an ex-dividend date just before expiry, that put should be valued higher...
Put midpoint = 59.65.... which is about 0.87 higher... that's what the market implies as a dividend. Normally they do a dividend of about 1.15/1.20 I think?... so there is currently a discount of 40 cents, which seems high, about 33% discount... but a discount is normal, since lot's of investors want to avoid paying dividend taxes... so they'd rather short the dividend, and hence market makers price the dividend at a discount...
So basically... there's not that much going on that's out of the ordinary.... Except that maybe that discount should be more like 25 cents... but hardly shocking
(PS. I had to edit a bit, because I used 84 days initially instead of the correct 70 for the Sep-expiry. Not much changed though)
SPY sep 300 put = 59.44 @ 59.85 at the close, at which time SPY spot was at 240.64. Total investment at midpoint price would be 59.65+240.64=300.30
Treasuries yield about 1% for that maturity... so there's about 58 of interest involved... (1% on 300.30 over 70 days).
300-(240.64+0.58)=58.79 would be the price of the put without any dividend. Since there's an ex-dividend date just before expiry, that put should be valued higher...
Put midpoint = 59.65.... which is about 0.87 higher... that's what the market implies as a dividend. Normally they do a dividend of about 1.15/1.20 I think?... so there is currently a discount of 40 cents, which seems high, about 33% discount... but a discount is normal, since lot's of investors want to avoid paying dividend taxes... so they'd rather short the dividend, and hence market makers price the dividend at a discount...
So basically... there's not that much going on that's out of the ordinary.... Except that maybe that discount should be more like 25 cents... but hardly shocking
(PS. I had to edit a bit, because I used 84 days initially instead of the correct 70 for the Sep-expiry. Not much changed though)
Last edited:
Closing a winner?
Hi
Thank you for these numbers @JackRab
Yes, you edited a little, before the edit the profit was 0,20 and now 0,40, a 100% more. But Yes you did it very quickly. Appreciate these numbers.
Very usefull to learn.
I want to say that this strategy isn't the right one for me. But a 0,40 non risk profit it is maybe good for someone. You was a market maket, it is good for a market maker or it is little reward ? I don't know what are the profits that market makers go after.
And probably a market maker or an institutional could hedge more efficiently and cheaply. For example using Spy futures, yes they exist, don't know why nobody talks about them. Instead of 300 you need 150 o 120, so the interests instead of 0,58 would be aprox 0,30.
And more. Observe the day before ex dividend date what was the extrinsic value for midpoint itm puts. I added a screenshot.
So at the end we have that now the puts are priced with a discount of aprox. 0,70 instead of 0,40. Quick numbers, no exaaact numbers.
Again it is not a strategy for me but it is curious to see what the big ones can do.
And thinking out loud, what about do the hedge with a synthetic Spy, buying a otm call and selling a more deep itm put, strike 320.
We convert a debit strategy to a credit strategy, no problem with interest. Yes it remains to think how we coud exit the strategy, but now I could enjoy myself thinking.
thanks
Thank you for these numbers @JackRab
Yes, you edited a little, before the edit the profit was 0,20 and now 0,40, a 100% more. But Yes you did it very quickly. Appreciate these numbers.
Very usefull to learn.
I want to say that this strategy isn't the right one for me. But a 0,40 non risk profit it is maybe good for someone. You was a market maket, it is good for a market maker or it is little reward ? I don't know what are the profits that market makers go after.
And probably a market maker or an institutional could hedge more efficiently and cheaply. For example using Spy futures, yes they exist, don't know why nobody talks about them. Instead of 300 you need 150 o 120, so the interests instead of 0,58 would be aprox 0,30.
And more. Observe the day before ex dividend date what was the extrinsic value for midpoint itm puts. I added a screenshot.
So at the end we have that now the puts are priced with a discount of aprox. 0,70 instead of 0,40. Quick numbers, no exaaact numbers.
Again it is not a strategy for me but it is curious to see what the big ones can do.
And thinking out loud, what about do the hedge with a synthetic Spy, buying a otm call and selling a more deep itm put, strike 320.
We convert a debit strategy to a credit strategy, no problem with interest. Yes it remains to think how we coud exit the strategy, but now I could enjoy myself thinking.
thanks
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You can never know the logic ofthe guy on the 'other side of the trade'- but options are perfect vehicles for retail traders. Most mug punters with forex/directional loseat least £6k and last 6 months. Day trading is not for retail traders I'd say. Options? Check out my site http://optionsinvesting.co.uk- it's aimed at newbies with a REAL trade every week- not like the pathetic forex phoneys who show you a chart from 2015- which was the last time they had a winning trade. Just sayin'. Rant over
sellers of options make money buyers of options are gamblers. professionals sell always and never ever buy options. buying options is a suckers game designed for people that are scared, have no capital and don't really know what their doing. there is no better way to make money than 1.) selling options 2.) directional trading
Check out Jeff Augen for viable long option strategies.
specifically which book of his he has many i see, thanks mark