Thoughts on ITM calender calls

thebubs -

The question is, do fairly priced call calendars perform the same (equivalence) as fairly priced put calendars of the same month/strike?

Due to market forces, at any given time, market prices for one can be higher or lower than the other (not theoretical). In your case it's because of the pending dividend.
 
Quote from thebubs:

acen, that makes sense always buy the cheaper, do that in any area of life, with same quality of course.
I get that the dividend makes the calls cheaper if the dividend date is during the spread, but my question is the following. Why, how does the dividend make any diffrence when playing options, you dont get the dividend so why does it matter when the dividend is, are you assuming the stock will go up in price during the dividend period. Not trying to be argumentative but really dont understand why it is important in the option world. May seem like a newbie question but oh well
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Look up Black-Scholes option pricing model. In there you will see that the dividend is part of the model, so dividends impact option pricing.

When you use a model to calculate an option price you calculate the forward price of the stock (a stock futures price, if you like). One of the main components of futures pricing is the cost of carry, which for stocks consists of the risk free interest rate and dividends. Interest rate increases the cost of carry, dividends reduce it.
 
Quote from thebubs:

I get that the dividend makes the calls cheaper if the dividend date is during the spread, but my question is the following. Why, how does the dividend make any diffrence when playing options, you dont get the dividend so why does it matter when the dividend is, are you assuming the stock will go up in price during the dividend period. Not trying to be argumentative but really dont understand why it is important in the option world.
More...
It's important because you can take positions based on a pricing assumption when in reality, it's the wrong assumption.
 
Quote from thebubs:

acen, that makes sense always buy the cheaper, do that in any area of life, with same quality of course.
I get that the dividend makes the calls cheaper if the dividend date is during the spread, but my question is the following. Why, how does the dividend make any diffrence when playing options, you dont get the dividend so why does it matter when the dividend is, are you assuming the stock will go up in price during the dividend period. Not trying to be argumentative but really dont understand why it is important in the option world. May seem like a newbie question but oh well
More...

you are new,but i like your passion passion and your creative logic.
you might learn faster,than an average trader......
to understand more about the dividend you must read more about the put/call parity...and how to produce cyntetics.....it not a big deal-easy stuff,and will open some new doors...

about the dividend in the calendars-i dont agree with the others,that is is the main reason.....it may play a role,but something else is dominating the misprising......
for me is impossible duarterly dividend of 0.5% to materialize as a 20-30% misprising between syntetics.
 
Quote from acen1975:

you are new,but i like your passion passion and your creative logic.
you might learn faster,than an average trader......
to understand more about the dividend you must read more about the put/call parity...and how to produce cyntetics.....it not a big deal-easy stuff,and will open some new doors...

about the dividend in the calendars-i dont agree with the others,that is is the main reason.....it may play a role,but something else is dominating the misprising......
for me is impossible duarterly dividend of 0.5% to materialize as a 20-30% misprising between syntetics.
More...

Do you even realize how ridiculous your statement about the percentages is!? You are comparing 0.5% of the stock price, which amounts to over $0.10 by the way, with a 20-30% "mispricing" between the two calendar spreads, which only cost around $0.60 to begin with.

If you go back to the original post you'll notice that the difference between the two calendars is 0.10-0.15 and with the forward annual dividend of 0.60 (according to Yahoo!Finance), that works out exactly the quarterly dividend!

So next time you get the urge to discuss mispricings, please try to resist it.
 
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