SPX Backwardation on DITM Sep-Mar Calendar Spread, will it gain?

Discussion in 'Options' started by darp, Aug 27, 2007.

  1. darp


    The question is will a SPX Sep-Mar 1700 Put DITM Calendar Spread with the Mar being Long and Sep being Short gain or lose value if the SPX stays even thru Sept?

    Have looked into it. Sept 1700 Puts are at 226 = 1474 and Sept SPX at 1473.70 so the DITM Put is trading at parity. And SPY is at 147.22. So Roughly its all at parity for Sep.

    For March its 1495.90 for futures (my quote) and 208 for Mar 1700 Put, or 1700-208 = 1492, so indicates a small preminum and IB says its 14% IVol.

    So the backwardation is in the Futures, with Options pegged to them ... but not for less than parity.

    Thus it would seem IMHO that if the SPX stayed right at 1472.20 the 1700 Sep would be 226 +1.80 =$227.80 so a $180 loss in this case, which just may be a quote issue.

    The March would reasonably lose 1/6th of their backwardization which is 23.20 now which would be 3.86 or $386 gain. So best I can figure the DITM 1700 Sep-Mar Put Calendar would gain 386-180 =$206.

    Be most interested in comments on this.