No. of Recommendations: 0
Can you explain that dividend comment?
I presume you mean XSP the ticker for mini S&P options,
Yes, mini S&P options.
I do not really understand what difference dividends make, to this long-dated DITM calls strategy. Everytime I try to think about how to account for dividends I just get dizzy. (Luckily BRK does not pay a dividend, so that makes it simple on BRK calls.)
Since the market does not hand out free risk-free money, and since the market discounts all known information, then I assume that option prices already take into account the known dividends. Apparently it makes a difference when/if closing an option at an ex-dividend date---but that's not what I am doing.
It appears that the SPY dividends in the below holding period (2/16/24 - 3/21/25) will be $6.63.
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For the 300 call expiring 3/21/2025.
At the time I grabbed both quotes on 2/16/2024
XSP was 501.17. Mid of bid & ask was 212.75
202.01 Intrinsic
12.54 TimeVal (est)
SPY was 502.01. Mid of bid & ask was 214.55
201.17 Intrinsic
11.98 TimeVal (est)
Assuming a 10% gain at expiration:
XSP will net (501.17 * 1.1 -300 -212.75) = $38.54
Gain = 18.1%
SPY will net (502.01 * 1.1 -300 -214.55 ) = 37.66
Gain = 17.6%
I do not see any effect of the SPY $6.63 dividends. Maybe the comparison of SPY underlying vs. SPY calls will be a different comparison. But that's not what I am comparing. I am looking at XSP call option vs. SPY call option.
[Yes, SPY itself will have had the 10% gain PLUS $6.63 dividends.
So the gain is (552.21 + 6.63)/502.01 = 11.3%. ]
I view these two outcomes as essentially identical. In that case, I prefer XSP because it is cash-settled and English expiration.
