Thoughts on ITM calender calls

Quote from weewilly:

the DEC options price in the next quarterly dividend of about .50c or so, that's all.

when SPY goes ex-dividend, it drops in price by about .50c, so the options are priced accordingly.

the difference between the call and put calendar at the same strike and is a reversal on the front month vs a conversion on the back. the short stock of the reversal cancels the long stock of the conversion and you have the jelly roll, as mentioned above.
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that might explain the "paradox".....looks like i might have been wrong(really dont want to surrender,i cannot find an argument against it)
its the dividend,after all,not the IV as i thought......
but still there is a difference:D
i ve noticed that,but never knew there is a dividend prising in SPY.

and still there's something else-lets get the same example:
SPY 90 strike sep/dec:
put spread-215$
call spread-165$

and a little impossible scenario- drop in IV to 10%,drop of the underline to 90,at sep 3(no change in dividend prising)

the call loses 25% of its value,the put spread 45% of its.
why would they change so diferently at my calculator,if there's no IV relation?
 
the calendars should rise in value, not fall. the IV crush hurts them both, yes, but the move toward the strike should help them both by a greater amount. btw in the situation you cite, IV will almost certainly rise and not fall should SPY move down from 103+ to 90.

the call calendar may outperform on a percentage basis in this particular (dividend) situation, because the drop in delta of the long Dec call makes the dividend payout less painful. in other words, you originally paid less for your call calendar than the put version because the dividend implicitly hurts the high-delta, Dec 90 call. as the underlying drops and the long call delta falls with it, the dividend payout hurts you less, so the call calendar spread may widen more than the put version.
 
here is an example using GE Sept/Oct calender calls on 14 strike price

Calendar Call 14 strike price

Sept
+GEWIN 0.51 0.52 0.52 -0.08 5,317
Vol. 143,084


Oct
GEWJN 0.85 0.87 0.87 -0.07 1,792
Vol. 13,849


Price difference .85-.51= 0.34

Calendar Put 14 strike Price

Sept
+GEWUN 0.47 0.49 0.48 0.03 8,860
Vol.74,763

Oct
+GEWVN 0.86 0.88 0.89 0.06 2,486
Vol. 13,672

Price difference 0.86- 0.47= 0.39

Price difference between the to is 5 cents, that’s a 12.8% difference if they are identical, why the 12% diffrence. Not trying to be condescending but why the diffrence?
 
Quote from MushinSeeker:

You guys want numbers. I ran it on my sim.(Hoadley on Excel sheet) .

Stock at 40. Choice between buying a 35 oct/sep call cdr vs. 35 put cdr. Using 45 iv on both,with Iv going up 2% on a 2 sigma move and iv losing 2% on an equally up move. ( canned simulators can't do this since this is home cooking)

First, the debit is within $4. ($55 vs $51.) The expected payoff using a single probability distribution curve ending at trade date + 19 days is $114 vs. $116. Translation. Put call parity wins again....

otm put spread = itm call spread.
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G , rerun the same with IR > 7%
 
Quote from thebubs:

here is an example using GE Sept/Oct calender calls on 14 strike price

Calendar Call 14 strike price
Price difference .85-.51= 0.34

Calendar Put 14 strike Price
Price difference 0.86- 0.47= 0.39

Price difference between the to is 5 cents, that’s a 12.8% difference if they are identical, why the 12% diffrence. Not trying to be condescending but why the diffrence?
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because GE goes ex-dividend by .10 in Sep.

http://www.ge.com/investors/stock_info/dividend_history.html
 
very true, i think the main diffrence between the two is what you do with the back end, other then that I would agree they are the same.
 
IV_Trader brought up a good point. the greater the interest rate, the higher the debit for the call cdr will be so since the cdr buyer loses the debit when stock goes away from strike at expiration, it could make a difference in the payoff. However we are talking about interst rate > 7% for it to start making a difference.

I moved the IR to 10% and the debit of the call vs put cdr is $44 vs. $68 in my prev example.In spite of the prem difference with stock at $30 at expiration, the call cdr loses $31 vs $26 on the put cdr.Only stock lower than $30 does the bigger debit start to come into play.
Ex- at 24 the call cdr loses 69 vs 44 on the put cdr.


Thanks A.
 
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