I think I get it... SPY has a higher cost involved compared with IVV. Also, the issuer can't lend out shares they hold as a hedge, and IVV can... so basically giving IVV a slight advantage to SPY.
Anyway, @raf_bcn ... the conclusion is: There's no real arb here. SPY is more costly to trade and therefore it's continuously lower compared to the index. And the saw-tooth action is because of dividends accrual and release.
Moral of the story, if you want to be long SPY, it's better to be long IVV instead And before you get ideas about an arb, what's the short rate for SPY?
SLE: The value of "U"=Ndx-PVDiv, where "Ndx" is either the actual index print or some implied version of that, and PVDiv being the present value of the Dividend. So, currently I am side-stepping a different interest rate for the Dividend, since my "U" derivation embodies that. I don't understand your comment on "delta-hedging" and how that relates here. After obtaining the "U" prices, I resolve the individual IV for each option, which is fairly good (Much better than the TOS values). I primarily trade out to about 80 DTE, with nearer term adjustments. -- I don't currently trade longer than 90DTE! Interest rates are very important to keep these accurate, and I still have some work to get those tighter.
Jack: I don't trade the ES or ES options, so have not pursued that, but expect there could be a tight correlation for specific expirations. The table I posted with the "U" values also provides how many samples {column F} (CALL/PUT pairs) used for each as well as the MAX error values for each -- Not just the ATM strikes. There are other algos that may produce tighter fits, but this has been satisfactory precision so far.
If you want to place a thorough combination trade, you must have options that can be executed out against the underlying. This only means you can trade SPY / SPY options, or ES / ES options. If stuff starts to happen you may need to emergency execute. You would execute if the market moves far enough fast enough as there wouldn't be much premium left so execute would set your mind at ease instantly with little profit difference. As you might have worked out, a cross margin trade would be much more profitable. However with these margin requirements you may be forced to exit your trade..... but what if you are trading a different combination to what I mentioned?? What if your clearer forces you out of your trade?? You may lose quite a lot of money on your trade because the option spreads might be so far out + the fact that you are forced / margin called out of your trade and you may lose a decent slice of cheese. This problem can be avoided by simply trading the option and its SPECIFIC underlying. Not the SPX index general underlying. In general for day to day trading this wouldn't affect you much.
ES and SPX are basically the same. Some differences in the options contracts, ES is sometimes American sometimes European and different settlement. Physical through the future in ES vs cash in SPX options. But both are futures/options on S&P500. Your 'U' values are all the corresponding synthetic SPX futures, and they would match the them if there was a future for every expiry. If they wouldn't match, there would be an arb opportunity by trading the future vs the synthetic. I assume you're doing this to find little mispricings? Or just to get the correct delta's and gamma's etc and IV? Are TOS greek values that far off?
Jack: My reason for this is to produce more accurate IV, and subsequently Greeks. This is needed for back testing as well as live trading. If you observe the IV in TOS, and compare that of the CALL and PUT at the same strike, they are NOT the same, but should be for CALL PUT parity. That mismatch approximates the error in their IV. -- This error propagates into their Greeks, which are dependent on the IV. -- From time to time, TOS seems to play games with how they produce the IV without informing customers. -- I suspect their IV derivation will continue to be a moving target. --
Thank you all for your resposes. I know Spy and Spx are different things, but no very different things. I mean the two have the same underlying, 500 stock prices. Yes Spy accumulates dividends during 3 months ant then pays at once, and Spx is paying little by little. Then let's see the ES. Yes it's quoted below the Spx price, because of the fair price of futures , = spx-dividends. The SPX and ES options also discount that . All is precise. And because of it, I think, the quote graph it says everything. Let's see the graph SPY*10-ES1! It seems to have also a cycle. And these yes are two instruments that can be bought ans sold. And they go synchronized because te pay day in Spy and the expiration day is the same. By the way _Do you think it is possible to trade the bars ?. The graphic has very long bars, and also the spy*10-spx. Maybe it is possible to take advantage. _One other question. Have someone try to put the trade, in paper, I have propose in the first post? The Risk graph is special, don't know if the reason is that the strategy have two underlyings or what. The Risk graph of box strategy it's usually horizontal and not with that inclination. Have some questions about that. Maybe in another thread. Thank you