Thoughts on ITM calender calls

Quote from weewilly:

because GE goes ex-dividend by .10 in Sep.
More...
No, it's not the dividend causing the difference in the cost b/t the two spreads. The short answer is that 5 cts of the difference is due to market pricing.

The pending dividend lowers the value of each leg of the call spread and raises the value of each leg of the put spread. Since they are approx. offsets, the net cost of each calendar is minimally affected by the dividend and the net cost of each calendar is approximately the same either way.

The reason for the 5 cent difference in the two spreads is the 4 quotes provided are market prices not theoretical prices. All 4 are trading at differtent IVs. So some are slightly above theoretical and some slightly below.
 
spindr0 i agree with you 100%, but contingent on the ex-date being before Sep expiry. i don't have the exact date. if it goes ex after Sep expiry, then part of the diff should be the divvy exposure on the back month.

the dividend is so small relative to spreads and minor market fluctuations, it's a poor example to use.
 
Quote from weewilly:

spindr0 i agree with you 100%, but contingent on the ex-date being before Sep expiry. i don't have the exact date. if it goes ex after Sep expiry, then part of the diff should be the divvy exposure on the back month. the dividend is so small relative to spreads and minor market fluctuations, it's a poor example to use.
More...
The example is fine. The data considered may not be...

I don't know the ex-div date. I made an assumption based on the link that you provided, perhaps faulty, that it would be 9/18 and therefore before Sep expiration. If it comes post expiry then I change my testimony to be in agreement with you (g). It's then due to dividend exposure on the back month, ignoring market pricing distortion from using closing prices.
 
well,i built up a couple more thoughts on the subject:
first,i dont think,that a quarterly dividend of under 1% can "missprise" a real syntetic with 10-20%......somehow doesnt add up such a theory.......
and, because i am a really extreme skepticist,i like to look for way to prove a theory by looking for way to disprove it,instead to look you a prove in it.......
it is much better solution(taleb says so also).......
lets do a "reverse engineering"-if the dividend is the only thing that misprises syntetic time spreads,follows that ITM call sould be always CHEAPER,or the same prise,as the OTM put calendar is.....,right?
so it WOULD BE IMPOSSIBLE,the put spread to be cheaper,that the call!
that means,that if we cannot find a cheaper put calendar,the theory "flies".
but if there are cheaper put spreads,what would be the reason for that?
 
Quote from spindr0:

When you run in circles, do you prefer clockwise or counterclockwise?
More...

i have an electronic watch.....so,i dont run clockwise......i run DIGITAL:D

now,here something for YOU:
goog 300 strike dec2009/jan 2011

call cldr-1760$
put cldr-1460$
even if you take off bit/ask,still the put is cheaper,that the call:D

so.....how you'll run on that one?on circules?or you are too lazy to run on it?
 
Quote from acen1975:

i have an electronic watch.....so,i dont run clockwise......i run DIGITAL:D

now,here something for YOU:
goog 300 strike dec2009/jan 2011

call cldr-1760$
put cldr-1460$
even if you take off bit/ask,still the put is cheaper,that the call:D

so.....how you'll run on that one?on circules?or you are too lazy to run on it?
More...

The difference between the two calendars is the cost of carry from Dec09 expiration to the Jan11.
 
Quote from MTE:

The difference between the two calendars is the cost of carry from Dec09 expiration to the Jan11.
More...

there's no cost of carry between syntetics my friend.
some of the guys here are right,the the dividend would make a difference in that case,but that's why i am giving an example with a nondividend underline.
the other thing is,that the position is not expiring 2011,but dec09.
if you short the call cldr,and buy the put cldr,and if we assume,that these positions are the same and expire equally,this is a pure arbitrage-if you use a full broker(not a discount one),and can prove him that they are "the same",he would allow you to open thousands positions,without puting any of your money,and by expiration at dec,you would be a very rich guy out of nothing.......to hook this arbitrage,the whole position is a credit-you even get money upfront from selling the more expensive,and buying the cheaper......

do you believe such an arbitrage is possible?
cause that how it ends up-if i have to accept your theory,so it means,that they would expire the same amount.....
if so,lets get all very rich and fast ,as shorting expensive and buy cheaper .........the whole cost of trade, in that case, is cheaper that 10-20% arbitrage.......
:D
 
You must log in or register to reply here.
Back
Top