Learned something new today

I was analyzing my naked Mar $45 XLE Puts. While looking at the option chain I see that there is two ticker symbols for the $45 Mar strike price. I always assumed that they were separate because one was originally a LEAPS contract and one was the regular near-term expiration that doesn't become a ticker symbol until it's regular calendar cycle begins. So it turns out that this is correct, however, this is what I learned: the LEAPS contracts do not expire on the third Friday of that month, they expire on the last day or that month. So the LEAPS for the same month same strike price have slightly longer maturities and this is why the stay separate ticker symbols. I always wondered why your LEAPS didn't just turn in to the regular calendar cycle contracts once they became available. I thought maybe it was for capital gains reasons because LEAPS are taxed at the short-term rate even if you held it for more than a year.

So attached is a snap shot of the prices today for the two different $45 puts and what got me thinking. If you could effectively middle those spread prices, you sell the put expiring 3/31 for .36 and buy the other that expires 11 days earlier for .27 and take in a credit of .09. Your only risk is being naked for 11 days, but you could always just close both of them out on 3/20 when the first one expires. Looking at today's prices for the Feb expirations gives you an idea of what it would cost to close out with 11 days left, and today's BxA price for the $45 put is .05-.09, so you could get out with a profit. I wonder if you are even allowed to sell to open on the 3/31 expiration. In my case I know I could buy to close that short position, but I think for just this reason of possible arbitrage that you're not allowed to enter opening positions in LEAPS contracts when they are technically not longer LEAPS. Just thought it was a bit interesting, but you would probably never be able to get any significant volume through on such a trade anyway as the market maker would know what you're doing and just keep the spreads such that even if you paid the bid and ask to enter the trade you couldn't make a profit. If you see the prices posted above there is a .01 differential if you paid the bid and ask, after commish you get nothing and still have 11 days risk.