UPS Calendar

[dbh21]

So I was checking UPS for holding a calendar thru earnings and I noticed that the put calendar is twice the price of the call calendar for the Aug1/Aug spreads.

 

 

 

As far as I can tell there is no ex-div date announced before Aug1 expiration. Is this price difference due to a bearish sentiment? Or am I missing something really obvious?

 

It seems like if you could get filled near the mids it would be an arbitrage opportunity (OI is low, so I doubt it).

[jr1221]

If you have the margin, what if you sell the expensive one and buy the cheap one?  

[dbh21]

That would be the arbitrage opportunity i was speaking of.

[Kim]

Previous dividends were in mid May and mid Feb, so I'm pretty sure there is a dividend before Aug expiration and the markets are pricing it. 

[Yowster]

The next ex-div date is likely around 8/15 before the August monthlies expire, so the monthly calls have that factored in.   So, I don't think that would factor in a hold thru earnings strategy.  

[dbh21]

Yes... of course I'm not thinking straight. I estimated the next div date at about 8/15... but I was only thinking about the short positions. I blame this on not having any coffee yet...

 

thanks

[Gary]

These calendars must have been slightly away from the money bc the price difference should have been much higher with a 67 cent dividend.

[Kim]

Well, for ATM options, you can expect the difference between calls and puts to be about half of the dividend, this is normal.

[Gary]

not to belabor the point, but shouldn't the difference be the full 67 cents roughly? thinking:

 

long call factors in 67 cent downward drift, times ~50% delta, = ~33 cent discount to parity

long put factors in 67 cent downward drift, times ~50% delta, = ~33 cent premium to parity

 

if "parity" is 45 cents (arbitrarily selected), call trades for 12 cents, put trades for 78 cents

 

short call/put not affected by dividend

Edited July 29, 2014 by Gary