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Old Sep 21st, 2012, 07:04 AM   #1
trader198
 
 
Join Date: Mar 2010
Location: usa
Posts: 1,467
any one has a good explaination about divendend and option.

I noticed today SPY gapped down like 0.6 point, but ES holds. I suspect it is SPY didvend.

actually I already noticed this dicrancpany about PUT/call. the put is more expensive than the call.

I bought some spy calls, in the morning dip, luckily I sold out at the closing.

just feel kind of weird
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Old Sep 21st, 2012, 07:18 AM   #2
newwurldmn
 
 
Join Date: Apr 2011
Posts: 3,418
Quote:
Quote from trader198:

any one has a good explaination about divendend and option.

I noticed today SPY gapped down like 0.6 point, but ES holds. I suspect it is SPY didvend.

actually I already noticed this dicrancpany about PUT/call. the put is more expensive than the call.

I bought some spy calls, in the morning dip, luckily I sold out at the closing.

just feel kind of weird
Options don't trade to spot. They trade to the forward. The forward is the spot - dividends received + interest (which is negligible).

The reason: a holder of a long call option has the economic delta exposure of a stock holder but doesn't have any rights to the dividend. So the call prices are discounted by this dividend. Similarly a put owner has the economic delta exposure of a SPY short seller except that on a dividend the short seller has to make the person from whom he borrowed the stock whole on the dividend. A put buyer has no obligation so the puts are higher by the dividend amount. Now this is risk is scaled by the delta (which can be viewed as a probability type event). This makes sense if you think about the fact that an out of the money option will have very little of this dividend exposure and an deep in the money will have a lot of this dividend exposure.

And fyi, this was priced in since the options were listed so you wont really make or lose any money on this phenominan (unless the expected dividend amount or dividend date changes)
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Old Sep 21st, 2012, 07:26 AM   #3
trader198
 
 
Join Date: Mar 2010
Location: usa
Posts: 1,467
good clear explaination.

but how about suppose: I bought some call yesterday for SPY 146 at 0.6 in the closing, but today SPY opened at 146.0~146.2 because of divendend. in this case I lost? am I right? when the market opens, my calls will be around 0.0~0.2? or in the contrary, how about I bought some puts 147 at 1.1 at the closing, now when the market opens, gaps down 0.6, my puts will be still around 1.1?
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Old Sep 21st, 2012, 07:47 AM   #4
newwurldmn
 
 
Join Date: Apr 2011
Posts: 3,418
What maturity?
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Old Sep 21st, 2012, 08:17 AM   #5
newwurldmn
 
 
Join Date: Apr 2011
Posts: 3,418
Assuming Sept expy:
You will lose money, but not because of the dividend. It will be because of theta.

If the stock rallies 60 cents so SPY is 146.60 cents higher (ex dividend) then you will make money (though not much).

Assuming not Sep expy:
You will have a small loss but not because of the dividend.

If you had bought the 145 call, for 1.6 (made up price) you would have had a big loss of 60 cents due to the dividend you didn't receive but could have through an early exercise.
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Old Sep 21st, 2012, 12:22 PM   #6
trader198
 
 
Join Date: Mar 2010
Location: usa
Posts: 1,467
you are right. just a suppose.

since I feel weird about the price difference for puts/calls, then in this morning I noticed ES shoot 5points, that equals to 0.5~0.6 move in SPY, I noticed spy is red and there is roughly 0.6 point gap.

the good thing is I did not buy any spy calls/puts, my rules is buy the cheaspest. if calls is cheap, I will buy calls. vice versa.

if some guys buy putls in this case yesterday and hold overnight, he/she will lose since they added the divedend in it. but the calls seem not effected since it already deducted the divendend. either way there is some loss invloved when I check yesterday's price and today's price.

man, I never come across this divendend thing in option trading, I have lot to learn.
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