Position Question\Advice needes

Discussion in 'Options' started by orimsh, Sep 6, 2011.

  1. orimsh

    orimsh

    Hi,

    I have some "leftovers" from previous SPY position:
    Currently hold for Sep 11 exp (9/17) - underlying is SPY:

    -66 short SEP PUT135
    -3 short SEP PUT134
    total of -69 short puts

    in addition there are -6900 short SPY shares.

    So basically I'm flat... however, I do need to close this position before Sep exp since there's SPY dividend on Friday morning 9/16, know it's too difficult to close it due to wide bid/ask spreads and the premium on the puts becuase of the Dividend.... any suggestion how to get rid of this position in thebest way?

    thanks in advance.....
     
  2. FSU

    FSU

    If you want to exit the position, put an order in as a spread. Although the quoted market for these options are fairly wide, the inside market (especially as a spread) will be fairly tight. You should be filled withing a couple cents of the midpoint of the option.

    If you are concerned about exiting the position just to avoid the dividend, this is not necessary. The puts essentially have the dividend written into them. They will fall after a dividend is paid and you will make back what you lost on your short stock. If this was not the case, one could simply buy your puts and stock and make free money on the dividend (which is obviously not the case.)

    Your only real risk here is you are synthetically short the 135 calls. You would also have pin risk if SPY went out at 135.
     
  3. rmorse

    rmorse ET Sponsor

    FSU is correct......
     
  4. orimsh

    orimsh

    Thanks FSU....

    Those "leftovers" are from a position that had many legs, I left those -69 ITM Puts and -6900 SPY shares to be flat on Sep exp, and since I couldn't trade this exp. cycle, however the dividend issue is one of the reasons I want to close the position I don't want to pay SPY div for the -6900 shares, and currently those ITM short puts include the div premium and also have wide bid/ask spread, so I need to get rid both shares+puts by next Friday morning.... also why I would be short on the 135calls?
     
  5. orimsh

    orimsh

    I also got a suggestion to use covered calls: buy 6900 SPY shares and sell -69 calls (can use ITM or OTM depend on risk) then the premium that I get from the calls (that would probably be assigned before Friday morning-dividend day) in this case after that the calls would be assigned on Friday morning I will be short again -6900 shares , will pay the dividend for them but the premium that I got will cover that, and the -69 puts will setoff with the -6900 SPY shares.... what do u think about this suggestion?
     
  6. FSU

    FSU

    You are synthetically short the 135 calls as if you buy them you have no risk in the position. Without these calls, if SPY goes beyond 135, you will lose on your short stock and no longer gain on your short puts.

    As I posted earlier, any money you pay in a dividend will be essentially subtracted from the price of your puts. It will not cost you anything, so there is no need to exit this postion except if it frees up needed margin.
     
  7. Just for clarification, his account won't be debited the dividend for 6900 short shares? Or, it will be debited, but his account balance will net out the same as the premium is subtracted from the short puts?
     
  8. FSU

    FSU

    His account would be debited for the dividend, but his short puts would decrease in value offsetting what he pays out in the dividend.
     
  9. rmorse

    rmorse ET Sponsor

    The puts are currently trading at a premium because of the dividend. After the X-DIV date, you'll owe the dividend, but the puts you're short will drop in value by a similar amount. Dividend expense, trading profit. Should be very close to a wash, and even better than you can trade out of it in the open market and no commissions.
     
  10. ok thanks guys :)
     
    #10     Sep 6, 2011