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Nice! I also sold 3780 for $1.20. I also dont mind slow drops with increase in VIX for juicier premiums!
My option that expires today is way OTM (Delta and Theta=0) so I decided to sell new options early. 3820 strike for $0.90. VIX= 19 Delta= 3.3.
I took a peek at the options chain for ES and it looks like it has more favorable bid/ask prices. For example, 3850 strike for ES is showing $1.35 and SPX is showing $1.05. Is there a reason for this?
@fi4wanderlust main reason is that the ES contract usually trades a few points below SPX index due to the no arbitrage condition. Look at the puts that are approx the same $ out of the money compared to the respective mark and they should be closer to the same
@fi4wanderlust No arbitrage means that futures (and options) must be priced so that you can’t make guaranteed profit just from exploiting the price differences between the different assets. Below is my non-finance-PhD explanation so ERN or others please correct anything!
Say the S&P500 stocks and the futures contract were the same price. You could buy the stocks, sell the equal amount of futures, and pocket the dividends from the stocks between now and the futures date. Free money. Therefore the futures price has to account for expected dividend payouts between now and the futures delivery date - this should reduce the futures price.
Similarly, if you wanted to buy the index today, you could instead buy a future and put the cash in a risk free asset: 3mo treasuries since were 3 months from expiry of the future. Therefore the futures price has to account for the short term interest rate matching the time to the futures delivery date. This one raises the futures price.
Because SPX reflects the index price today and ES is a futures contract, the prices must be different to account for the dividend payouts and the short term interest rates. As the futures delivery date approaches they should converge. If there were a price difference that could create a risk free profit, it would be quickly exploited until the price difference went away.
@nobatmanjokes Very good explanation! The investment in physicals pays you dividends, so all else equal, the futures price has to be a bit lower to provide the same return to the futures buyer.
But: the futures buyer has the margin cash and can derive risk-free income from investing that margin cash. That has to be balanced against the dividend income.
In the current environment, the ES futures price is a bit below the S&P500 index.
In general F = S * exp{ (r-d)*T }
where:
F = Futures price
S = spot price
r = risk-free interest (p.a.)
d = dividend yield (p.a.)
T = time to futures expiration in years
Thank you both for the detailed explanation! I still have a lot to learn!
Sold Wed (3/31) 3770 Put for $1.05 at 1144 Eastern Time with SPX at 3967.
Hope this goes the right way and can sell another tomorrow.
@navypack you’re usually a bit higher, trying a new approach?
I’m still targeting $1.2 for W/F expiry, putting me 10-20 points above you today.
@nobatmanjokes mid-day buys scare me a little based on 2.5 days until expiration. More time for bottom to drop out.
I'm trying for $1.80-2.00 between two puts, so ideally can sell another one tomorrow for $0.80.
@navypack One could do a hybrid strategy: sell a few same-day puts. As they approach expiration roll into the t+2.
Reminder: Today is Palm Thursday and CBOE-SPX option expiration. The next expiration date is Monday due to the market holiday on Good Friday.
Happy Easter!