Price discrepancies in weekly calendar spreads in AMZN

[Hany]

 

 

Hi all.  I’ve noticed a strange and persistent price discrepancy in the price of a specific calendar spread in AMZN.  Please take a look at the current prices below for the 1700 put calendar spreads.  The distance between the short and long contract for each calendar spreads is seven days.

 

Short Nov 30 1700 Put
Long Dec 7 1700 Put
Price:  19.60

 

Short Dec 7 1700 Put
Long Dec 14 1700 Put
Price: 10.20

 

Short Dec 14 1700 Put
Long Dec 21 1700 Put
Price: 7.68

 

Short Dec 21 1700 Put
Long Dec 28 1700 Put
Price: 4.18

 

Short Dec 28 1700 Put
Long Jan 4 1700 Put
Price: 6.53

 

Short Jan 4 1700 Put
Long Jan 11 1700 Put
Price: 6.28

 

Short Jan 11 1700 Put
Long Jan 18 1700 Put
Price: 6.43

 

The discrepancy is the price of 4.18 for the Dec 21 Dec 28 calendar.  This spread is much cheaper than all of the other spreads.  Shouldn’t the price of the calendar increase as expiration date approaches?  If so, why is this spread much cheaper than longer dated spreads?  

 

The discrepancy above is not limited to just the 1700 strikes.  It extends across all strike prices and for call calendars as well.  Also, I have observed this trend for a couple of weeks now.  Is this normal?  Does anyone have experience with this?  Can we take advantage of such discrepancies?  Thank you in advance.
 

 

 

 

Edited November 29, 2018 by Hany

[zxcv64]

36 minutes ago, Hany said:

Shouldn’t the price of the calendar increase as expiration date approaches?

 

Yes, which is why this.......

 

Short Nov 30 1700 Put
Long Dec 7 1700 Put
Price:  19.60

 

....costs more than this....

 

Short Dec 7 1700 Put
Long Dec 14 1700 Put
Price: 10.20

 

....which costs more than this....

 

Short Dec 14 1700 Put
Long Dec 21 1700 Put
Price: 7.68

36 minutes ago, Hany said:

The discrepancy is the price of 4.18 for the Dec 21 Dec 28 calendar.

 

There are Christmas holidays between the short and the long - so this reduces the trading days from 5 to 3 at most, or even less in practical terms. Mon 24th is Christmas Eve and very little will be traded on that day, due to early closing, so effectively the longs don't have many more extra days of time value compared to the shorts.

 

Edit: Trading days between now and shorts expiry = 16

         Trading days between now and longs expiry = 19.5

 

Not much in it, hence the prices will be similar.

 

This could explain the discrepancy.

 

 

 

 

 

Edited November 29, 2018 by zxcv64

[Hany]

Ahh yes, Christmas.  I forgot about that pesky holiday.  Market closure also explains why the Dec 28, Jan 4 spread is more expensive than spreads that expire at later dates -- because the short contract has fewer trading days than the long contract.  Your answers make a lot sense and I should have figured this out for myself.  Thank you!