PPH

Some ETFs, like SPY, the S&P 500 ETF, collect all the dividends paid during the quarter and then pay it out at once. Others pay it out as it comes in to them. For example, tomorrow PPH, the pharmaceutical HOLDRs, pay a cash distribution of $3.96 because of the merger of Wyeth (WYE) and Pfizer (PZE). And the CBOE is adjusting the option contracts to reflect that special payment.

Here is a screen shot of the November series options (Click on the image to enlarge):

PPH is trading at 68.39 / 68.4 and the Nov 70 put is 2.1 / 2.35. The intrinsic value of the put is 1.6 so the remaining fifty to seventy five cents reflects the time value to expiration. There are 32 days until the November options expire and theta is a penny and one half, so that is $0.48. There is a regular dividend payment of $0.009 cents with ex dividend date Thursday the 22nd of October. Too small to be seen with the naked eye.

I sold some Priceline straddles today.

The Event

They are announcing earnings next Tuesday which makes the implied volatility high, around double the historical volatility.  I sold the options far enough away from where the stock is trading that I am protected from moves up to three or four standard deviations of one day price moves.  I also have time decay working for me.

It looks like a good trade.

We’ll see.

Time Decay

We’re going into a long weekend and next week is expiration week.  From the end of the trading day today, until options expire next Saturday at 5 PM, is 192.5 hours.  It is noon now in New York, so there are four and a half more trading hours left to Friday.  Then there is the rest of Friday night, seven and one half hours. Saturday, Sunday, and Monday is 72 hours.  So from the end of trading today there is 79.5 hours of weekend and nine and one half hours until the market opens Tuesday.  That gives us 89 hours out of the remaining 192.5, really we shouldn’t count the Saturday that options expire, since there is no trading on Saturday.  So that would give us only 168 hours until the end of trading Friday.  For 89 out of those 168 hours there is no trading.  That is a little more than half the time remaining.

But options are decaying as the clock is ticking.

Weekend Volatility

Volatility doesn’t go away completely over the weekends.  Remember the weekends last Fall when the Federal Reserve or the Treasury had a new plan to announce every Sunday.  That led to gap openings on Monday morning.  Typically, the volatility over the weekend is less than one half the weekday volatility.

Today is a good day to sell February series options.