Tomorrow SPY trades Ex-Div which means if you own SPY you will collect the dividend. Here is a brief thought expermient on why Ex-Div is bullish for SPY:
- If you are short SPY you have to pay out the dividend.
- If you are short ITM calls you will probably be exercised.
- If you own ITM calls you probably want to exercise so you can collect the dividend.
If your short ITM calls, the dealer is then long that call. They are hedged via short equities. If that ITM call goes off the books they will need to buy back stock. The guy short that ITM may roll it, who knows.
If youre long the ITM call, the dealer is short that call and hedged long – so the dealer would sell equities if the call is off their sheets. The difference in this case is that the guy long that call probably wants the dividend so as they close the call position they are buying the stock.
If you are short the stock tonight you will have to pay out the dividend to your broker. Yes the stock is adjusted in the AM, but I’d wager there are plenty of shorts looking to avoid that situation.
Using the above logic you end up with a situation where most of the ITM calls will get rolled off and net equity flow from this should be positive.