Post #1486 by mungofitch on the Mechanical Investing board

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I think I mentioned earlier that I like calls on XSP better than SPY because of the English expiration, cash settled, and no fiddling for dividends.

Can you explain that dividend comment?

I presume you mean XSP the ticker for mini S&P options, not the "iShares Core S&P 500 Index ETF (CAD-Hedged)".

If it's tracking the index value, then a delta-one long position in this is getting [index change] whereas a long position in SPY or similar is getting [index change + dividends]. Much like a futures position.
So in comparing the two, the index option would be more expensive (i.e., giving you lower return) even at the same price, no?
Therefore your incremental cost of the leverage is not just the price premium ([execution + strike] - index value), but the price premium plus the foregone [after tax] amount of the dividends in the same period, I would have thought.

Jim

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