Curious if anyone still does these dividend plays anymore. I see this Fridays Sept 50 SPY calls have a decent open interest, over 4000. If you sold the 50/55 call spread (4.98 bid) 100 times, and exercised your 55 call Thursday, you would only have to get 2 of the 100 you are short not assigned to make money. Dividend around 1.49.
SPY Dividend Plays
- Thread starter FSU
- Start date
The way it would work is you sell the spread on Thursday and then exercise your long options on Thursday night (a day before expiration). The process would be automatic after the close on Friday. If all of your short options are assigned, you would end up with no position and would be out commissions and whatever you sold the spread under 5 (so if you sold it for 4.98 you would be out .02 or $200 per 100 spreads). For every one of your short options that are not assigned, you would be long 100 shares of SPY stock and short these deep calls (but for only 1 day as the would expire that Friday night). So you make about $150 (in dividends for the 100 shares of SPY you now have) for every call that isn't assigned.
You are hoping the whoever is long these calls may not realize they need to be exercised a day early to capture the dividend.
Note that you may need a Portfolio Margin account to do this trade. Not sure of what the margin would be on long SPY stock and short a deep SPY call for the one night.
I haven't been able to make this work well. The problem is the volume the day before ex-div is usually 5-10 times the OI, all from people doing similar spreads, except they're trading at parity rather than a couple cents off. I've long been curious how those trades work. I never see them resting on the COB, and I can't get filled without giving up a bit. Sometimes they aren't even flagged as spreads in time and sales despite the legs trading at the same time. I suspect they are pre-arranged, but I haven't wanted to worry about the potential regulatory issues of going down that route myself.
Robert Morse
Sponsor
Most of these spreads are crossed on PHLX by MMs. Some hit the COB on CBOE from customer orders.
Robert Morse
Sponsor
The general answer is that if the value of the put on the same strike as your ITM call exceeds the values of the dividend including the cost of carrying, you are at risk of an early assignment.
Last edited:
Thanks Robert for your response, I had originally sold 10 strangles and bought back half of the calls before the close. I'm away from my computer also for the rest of the week and just with my phone. I was also concerned that Spy would exceed 310 before Oct expiry.
UOTE="Robert Morse, post: 4928343, member: 495374"]The general answer is that if the values of the put on the same strike as your ITM call exceeds the values of the dividend including the cost of carrying, you are at risk of an early assignment.[/QUOTE]
UOTE="Robert Morse, post: 4928343, member: 495374"]The general answer is that if the values of the put on the same strike as your ITM call exceeds the values of the dividend including the cost of carrying, you are at risk of an early assignment.[/QUOTE]
Hi @FSU
It is also possible to do this dividend play today by selling the itm put and buying SPY.
But the margin required by IB is high, almost 2,000 for a single 250 put combo. Much more than the margin required for openning what you proposed.
And as @elt894 says, today is going to be a lot of volume with this itm puts, usually 2 or 3 times the open interest.
It is also possible to do this dividend play today by selling the itm put and buying SPY.
But the margin required by IB is high, almost 2,000 for a single 250 put combo. Much more than the margin required for openning what you proposed.
In the IB dividend schedule says that is going to be 1.308
And as @elt894 says, today is going to be a lot of volume with this itm puts, usually 2 or 3 times the open interest.
Robert Morse
Sponsor
No. Buying a put with stock before a Dividend and then holding until after would create a loss for the option/stock positions that you will get back with the Dividend. If you are long stock and short a DITM call, where the put has little or no value, you get to keep the dividend with no off-setting loss from the change in prices after the dividend. You end up with a buy-write with cost of carry and the risk similar to short the put.