Premium difference between SPX and S&P Mini (ES) option premiums

Discussion in 'Options' started by Brennen81, Feb 8, 2017.

  1. JackRab

    JackRab

    He's comparing the ATM ES options, which is 2290 strike... with a SPX strike that's not ATM...

    The ATM SPX would be 2295 - 2 (dividend) = 2293 strike

    (I just state 2 as dividend, might be more... I don't know, but looking at put call parity in the 2295 strike I would say 2 dollars is priced in)
     
    #11     Feb 8, 2017
  2. Robert Morse

    Robert Morse Sponsor

    Except SPX options are priced vs the future, because that is the hedge. When I was part of a team building a risk/margin platform, we spoke with ES and SPX MMs. They all told us the use the appropriate ES future to get the right options Ivols. SPX options are only priced vs the cash at expiration.
     
    #12     Feb 8, 2017
    tommcginnis likes this.
  3. JackRab

    JackRab

    Cash minus dividend... Otherwise you can arb the dividend by doing conversions.

    If that 2295 strike was 9 for the call and 9 for the put... you could -call and +put and buy the index... receive the dividend and expire with 2 bucks in your pocket...

    That's not happening.. look at the further months...

    You indeed price the march SPX on roughly the march future, but in weeklies when the future doesn't expire at the same time, you price on the index spot... but still have to account for dividends. (Or better yet, March future + the excess dividend that are between options expiry and futures expiry...)

    The hedging doesn't really matter, since you always hedge with the most liquid future. So you trade Dec17 options with the March future... but the Dec17 has more dividends in it...
    You hedge with the future, because that's easiest to do. When you trade a hedged weekly, at expiry you need to be delta flat in that options series, otherwise you have a leftover future position since the SPX is cash settled.
     
    Last edited: Feb 8, 2017
    #13     Feb 8, 2017
    tommcginnis likes this.
  4. Hey Jack. Where can I find that Dividend info you took a screenshot of in IB?
     
    #14     Feb 8, 2017
  5. And thank you for your input!!!! I really appreciate it.
     
    #15     Feb 8, 2017
  6. JackRab

    JackRab

    Right click on SPX (or any stock of future) and there should be dividend schedule in the dropdown for that underlying. But as I said it's not really correct. I don't know how/when they update their dividend info. I bet it's not 100% updated.... so don't take it for a fact.
     
    #16     Feb 8, 2017
  7. JackRab

    JackRab

    PS. not all indices work this way though. Most do, but some are performance based. Meaning the dividends will always be 'returned' to the index level. DAX for one is calculated like this. That means all futures and all options are priced on spot index + interest and no dividends have to be taken into consideration.
     
    #17     Feb 8, 2017
  8. JackRab

    JackRab

    One last thing.. so if say tomorrow $1 goes ex-dividend... that means (ceterus paribus) SPX spot will be at 2294 and that 2295 call and put still trade at +2 for the put ($1 dividend left).

    Then, when the last dividend has gone, the spot SPX (c.p.) will be at 2293 and 2295 call and put still at +2 for the put...
     
    #18     Feb 8, 2017
  9. tommcginnis

    tommcginnis

    Thank you both for the great intel!
     
    #19     Feb 8, 2017
  10. So this does make sense as the next Ex-Div is tomorrow @ $2.133. The next ex-div is Monday for $2.7, so Friday it should be acting similar, and more so. What I am curious about is the days that don't have an ex day the next. Which is tomorrow and also on Monday. I'm looking forward to seeing how they are priced.

    This has been very eye opening and I can't express enough gratitude for taking the time to respond to my post.
     
    #20     Feb 8, 2017
    tommcginnis likes this.