# Discrepancy between SPX and SPY call premiums

SPX is usually around 10x that of SPY. SPY is at 217 means SPX is roughly 2165 to 2175. I understand that one is an ETF and the other just 'tracks', SPY gives out dividends, SPY is more liquid, etc.

However, for example, for Sept 2 expiry the call premiums are as follows (both of these are PM settled):

Call SPY @218 = $0.59 Call SPX @2180 =$4.1


I would have expected SPX to be around >= \$5.5 Can any experienced traders explain the discrepancy?

## 1 Answer

Some Factors in play:

• (MOST IMPORTANT) Dividend yield, if there was no dividend on SPY call value would go up to about ~0.50 USD

• Liquidity premium, if two assets are identical in every way except liquidity, more liquid asset has a higher value to investors. However in this case I think the liquidity premium is more an issue for the market maker than anyone.

• Costs, I doubt costs are equal for Futures trading of SPX vs ETF Trading of SPY, driving costs up. This has to do with the cost of hedging for the market maker.

• The problem with the dividend theory is that SPY is predicted to go ex-dividend on September 16, two weeks after the option expires on September 2. The dividend is predicted to be about 1.087 – noob2 Sep 1 '16 at 11:46