Isn't this improved efficiency going to reduce premium on IC spreads and hurt those of us who play OIX/SPX IC? TS
No. It just reduces the b/a spreads that result in a huge amount of slippage for traders. The theoretical value remains unchanged as it is not determined by those with exclusive right to list the options. {edit} Keep in mind that SPY is already listed on multiple exchanges and has a very narrow b/a spread. If this significantly reduced the premium on SPX spreads then SPY spreads would consequently be overpriced as the implied vols are the same for both tickers.
I study the history of indices going back 49 months. Here is some findings might be of interest to you regarding the SPX and the Settlement Relationship of The Closing Price of the SPX on the third Thursday of every month and the Settlement that follows Friday mornings. Out of the past 49 months from 10/02 till 10/06 the settlement was 37 months higher, and 12 months lower than the closing price. The average point gain on the higher months = 4.53 points The average point loss on the lower settlement = 4.98 points If you bought an ATM call on the close of every Thursday of expiration for the last 49 months you would have gained a total of 167.54 points and lost a total of 59.80 points , that gives you total profit 107.74 points for the 49 months for the average gain of 2.2 points a month. It all depends on how much you pay for those calls. On some of the months where the settlement is 4 points or higher you are going to make serious profits while your loss is limited to what you pay for these calls. You can do it on the XSP too. 19 times out of the 49 months the settlement was higher by more than 4 points than the close. Labib Imtanes
Good info! How many months out of 49 the settlement was lower by 4 points? It will be nice if you can show us the distribution. I like to find out if there is any statistical implication.
labib52 - thanks for that info. I have always worked to an assumption of on average +/- about 4.5 on SET. Its very important to me since I usually open my Iron Condors on the first Monday following the prior Friday SET for expiration on the next month. My current strategy is to hold through SET or to sell the farthest away spread if there has been a significant movement in one direction after about 2 or 3 weeks. SET is a total crap shoot though. If you go back and look at the data you will find that there are times when SET can be different than S&P by up to 10.5 or so. This is due to each S&P500 underlying equity being evaluated in its PRIMARY market open and some of those are on the west coast markets. Its pretty frustrating to get caught on a SET gap up or down when your position was relatively safe AND the market itself opened in a different direction (according to the charts) than the SET finished at. I have both made and lost on SET gambles. I may try a few low cost calls on SET and play the natural market random motion at the opening this period. I notice that one can usually get a price on options strikes that are very near the money or in the money for almost the raw distance of S&P to the strike (i.e. with almost no premium) in the final 15 minutes of trading. But an hour or so before the close the bid/ask can vary by as much as the average SET gap up/down (e.g. about 4.5). Its an interesting emotional dynamic as writers of options play chicken with holders of options right up to the bell and it is possible to get some sweet deals and then do a pure gamble on a favorable SET. It can be quite an adrenaline rush marking time and counting down for the option's Friday SET determination around noon. Cheers, TS
I have something to offer here! I have compiled a spreadsheet using SET data from 1998. The first sheet summarizes the results calculated on the second sheet. First set of data indicates what the % chance is the SET will be a given distance from the prior day close reported for all data, UP SETs and DOWN SETs. The second set of data computes the probability of the SET distance from prior month SET for all data, Bull markets and Bear markets (subjectively chosen by me). The last bit just calculates the probability of an UP SET vs. the previous SET. And if none of these ramblings make sense, I have comments embedded in the three headings...
Wouldnt the market makers price in SPX premiums to account for SET. I cannto imagine ATM options are trading for $0.50 and you can buy small amount and profit on a 4 point set. Included in this study should be average cost of ATM or near strike calls and puts on expiration day and te horrible slippage of the wide b/a spreads for SPX.
here is the total 49 months with thursday close and friday set: month thursday close fri set difference 10/06 1366.96 1371.12 + 4.15 9/06 1316.28 1323.12 + 6.84 8/06 1297.48 1300.26 + 2.78 7/06 1249.13 1251.72 + 2.59 6/06 1252.09 1256.15 + 4.06 5/06 1261.85 1264.71 + 2.64 4/06 1311.46 1320.70 + 9.24 3/06 1305.33 1310.16 +4.83 2/06 1289.38 1288.99 - .39 1/06 1285.04 1284.28 - .76 12/05 1270.94 1274.84 + 3.90 11/05 1242.80 1254.85 + 12.05 10/05 1177.80 1183.79 + 5.99 9/05 1227.73 1232.79 + 5.17 8/05 1219.02 1223.90 + 4.88 7/05 1226.5 1226.86 + .36 6/05 1210.96 1222.68 + 11.72 5/05 1191.08 1191.93 + .85 4/05 1162.05 1158.85 - 3.20 3/05 1190.21 1190.70 +.49 2/05 1200.75 1201.79 + 1.04 1/05 1175.41 1176.77 + 1.36 12/04 1203.21 1190.45 - 12.76 11/04 1183.55 1184.41 + .86 10/04 1103.29 1106.13 + 2.84 9/06 1123.50 1127.02 + 3.52 8/04 1091.23 1090.65 - .58 7/04 1106.69 1115.04 +8.35 6/05 1132.05 1129.60 - 2.45 5/05 1089.19 1094.66 +5.47 4/04 1128.84 1133.81 +4.97 3/04 1122.32 1120.13 - 2.14 2/04 1147.06 1150.76 + 3.7 1/04 1132.05 1137.52 +5.47 12/03 1089.18 1091.61 + 2.43 11/03 1033.65 1038.14 +4.45 10/03 1050.07 1051.24 +1.19 9/03 1039.58 1039.60 +.02 8/03 990.51 991.05 + .54 7/03 981.73 989.25 + 7.52 6/03 994.70 1001.56 + 6.86 5/03 946.67 943.62 - 3.05 4/03 893.58 878.92 - 14.66 3/03 875.67 887.16 +11.49 2/03 837.10 840.98 + 3.88 1/03 914.60 908.33 - 6.27 12/02 884.25 891.11 + 6.86 11/02 904.27 896.36 - 7.91 10/02 879.20 873.57 -5.63 Labib Imtanes