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American Capital Agency Corp. Message Board

  • robert_jdelaney robert_jdelaney Apr 30, 2013 7:40 PM Flag

    Deep in Time Calls

    I have been noticing there has been almost no time premium and at times negative time premium on the Jan 2015 28's and 27's when compared to Jan 14's or even some 2013 calls. I dumped 40 of them today and still hold 140 calls- planning on holding the rest thru next ex unless we go over 34 in next couple weeks- I think SPO would come then if we breech 34 around the earnings date

    Wondering if anyone has noticed this.

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    • The same cannot be said for the puts which makes one wonder why.

      • 1 Reply to raybans2
      • Both Robert and RayB's questions have been hashed a 100 times over the years here:

        The condensed version:

        To Robert,

        The further out the time to expiration(15Jan), the less that capital(spent in purchasing Calls) is available to earn the dividends, and the more dividends lost out upon. Second, the higher the risk to the Leap Call buyer because of all of the dividends out to 15Jan which the PPS will be diminished by. (More risk in that the PPS might not recover from the subtraction each Q of the dividend from the PPS).

        To RayB,

        The amount of every dividend(until the options expiration) is pre-loaded in the Leap Put price. The reason is that the MM has to short shares when you buy a Long Put from him, to hedge his Short Put position(he sold a Put to you, so he is short the Put and hedges that short Put position by shorting the equivalent shares, to remain neutral). He has to pay the dividend on those short shares on every Q you are Long the Put, so he passes that cost onto the buyer of the Put.

        It is confusing to understand but reason through what I wrote and you'll get it...;-)


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