2
$\begingroup$

Interactive Brokers currently shows the following data for SPX options at strike 3000 and expiry 2020-09-17:

  • calls: bid/ask 234.10/236.30, theta -0.362
  • puts: bid/ask 146.70/148.40, theta -0.225

Then for E-mini future options with the same strike and expiring just one day later (2020-09-18, for both the option and the underlying future) the following:

  • calls: bid/ask 234.25/236.75, theta -0.279
  • puts: bid/ask 146.75/148.50, theta -0.284

Why is theta -0.362 for SPX calls, but -0.279 for E-mini calls when they are practically the same intsrument?

Is this to do with the fact the former are Europen-style and the latter American-style? (If so, why would American options decay faster? How does this tie in with the fact that the prices are almost the same and presumably still will be tomorrow?)

$\endgroup$
1
$\begingroup$

The theta for puts and calls at the same strike should be the same, so it seems the SPX theta is somehow wrong.

Edit: thanks @maxim, I see now what the issue is. I think the difference is coming from the fact that the options on the e-mini futures are using the Black formula where the futures price is held constant when calculating the theta. However the options on SPX are using the classic Black Scholes formula which holds the spot index price constant. This latter model then gives a second component of theta corresponding to the move in the forward price of the stock towards spot, which has nothing to do with the decay of time value. Indeed a forward contract on SPX would have theta under that definition , even though it is not even an option. The two definitions of theta are inconsistent with each other conceptually but it wouldn’t surprise me if that is the standard treatment on a broker website.

$\endgroup$
  • $\begingroup$ In what sense of "should"? At least in Black-Scholes with non-zero risk-free interest rates theta takes two different values for calls and puts: en.wikipedia.org/wiki/Black–Scholes_model#The_Greeks $\endgroup$ – Maxim Nov 7 at 11:33

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.