Call/Put credit spread differential on SPY

Discussion in 'Options' started by bc1, Nov 4, 2011.

  1. bc1


    Hi, I was just looking at SPY which was trading at 124.5 +-.

    If I go up 3.5 to do a 128/133 bear call spread, it prices at roughly 1.10 less .14 for a credit of .96.

    If I go down 3.5 to do a 121/116 bull put spread, it prices at roughly 1.69 less .78 for a credit of .91. A 120/115 bp spread prices at 1.51 less .67 for a credit of .84.

    I was just wondering where the differential comes from between a call and put in this situation with the put credit spread being less? It almost seems like there is a bias but since the etf is going down today, I would think that the price of put spreads should be increasing. Thanks for any clarification.
  2. jamesbp


    IV Skew .... makes the OTM put spreads 'cheaper' as you are selling lower vol / buying higher Vol .... whereas for the OTM call spreads you are selling higher Vol / buying Lower Vol ..

  3. bc1


    Thanks James. Guess I have more to learn about IV. When I put in that Nov 128/133 bear call trade on Wednesday night when the etf was at 123.99, I believe the spy IV was around 29%.

    Weird thing though is that Thurs morning when I saw the ECB announced the change in interest basis, the futures were way up and the spy was up so I tried to cancel my trade for further evaluation. However my ATT DSL internet connection was down and I couldn't cancel it. I had put that trade in at a credit spread of .97 which was midrange between .95-.99. The SPY gapped open to 125.29 and at 8:30:04 EDT they filled my trade but gave me a credit spread of $1.27. That was .30 higher than what I put in and surprised me that they wouldn't stick me with the .97 that was in my day order. I suppose that was at the bottom of the bid/ask spread in the morning but I never saw it. Is that how it works.

    On the other hand, my 18.92 RIMM 19/22 Nov bear call spread of .88 never filled as the price of the spread dropped. The RIMM IV was around 87% which brings up a question which is why the 18/15 bull put spread was at .70 or a .18 diff between the two wasn't that far away from the SPY difference? Since I can't remember what the spy 120/115 bp spread was, I assume most will disregard this question but the 120/115 bp spread today is .89 which is only .08 under my bid. Thanks anyway.
  4. Your last post is very confusing. Anyhow you should understand that in simple terms that since 1987 there is more "demand" for puts vs calls and that is what creates the skew, all things being equal. (please don't flame me I am trying to keep this simple for the op).

    look up posts by dmo, he has some videos which talk about supply and demand for options.
  5. bc1


    Thanks guys. Guess I know about this IV smirk/smile now. I've just been checking my one or two trades that I have open on a regular basis and logging the change in prices in the spreads to see if I can understand the why's and how's. That call/put price skew is one thing that jumped out at me.

    Guess I'll keep logging prices until I can get a handle on the relationship and what is time value and what is intrinsic value and what is implied volatility. As I watch the stock/etf price go up and down during the day and week, I don't see a proportional change in the option prices so I haven't been able to put a finger on what is happening yet.