Does Option Prices tell current market bias?

Discussion in 'Options' started by KerryNewman, Apr 15, 2018.

  1. 312

    312

    Could also be in play for a takeover and if you're asking this you can't reliably price that
     
    #11     Apr 15, 2018
  2. ET180

    ET180

    No, because if there was no dividend, I would buy the stock at $300, buy enough 300-strike puts to completely hedge the position, and sell the same number of 300-strike calls to make guaranteed risk-free profit. These situations exist and I do them if I want to get a slightly higher (although still really low...currently something like 2.3% APR) rate of return on excess cash.
     
    #12     Apr 15, 2018
    Sig and 312 like this.
  3. destriero

    destriero


    Yeah, but anyone could book the conversion.
     
    #13     Apr 15, 2018
    312 likes this.
  4. ajacobson

    ajacobson

    Stock + Put - Call is parity. They should yield the risk free rate. There are some exceptions where stock is hard to borrow(expensive puts) or dividend uncertainty. Otherwise if that relationship get out of line it creates a risk free opportunity. P/C parity assumes all the pieces can be easily traded and money can be borrowed/lent freely
     
    #14     Apr 15, 2018
  5. 312

    312

    Appreciate the answer and agree in certain scenarios. You're booking the conversion at a debit. Depends on the divs (or overall PNL/takeover price)
     
    #15     Apr 15, 2018
  6. destriero

    destriero


    Ahh, referring to completion/delisting.
     
    #16     Apr 15, 2018
  7. 312

    312

    Thanks. Not sure what this means
     
    #17     Apr 15, 2018
  8. 312

    312

    Oh what price they complete the deal, got it. Yeah but that's still a tentative, probability-weighted average and odds are if you're on this forum you don't have access to improve the odds vs priced.
     
    Last edited: Apr 15, 2018
    #18     Apr 15, 2018
  9. This is a much different question.

    Calls should be cheaper if a dividend is paid, so it could be assumed that this is not a cash flow positive asset. It could theoretically be a security with an extremely negative interest rate. If these are European options, that would have to be the case.

    The volatility surfaces of puts vs calls do a see saw of their own throughout the day and over time for American options with the underlying. If there's no volume, the market makers probably believe the price will rise. If there's lots of volume, funding has pushed the market into this configuration.
     
    #19     Apr 15, 2018
  10. 312

    312

    Nobody on this forum trades European options. This is a guy waiting to get early-exercised by a dealer.
     
    #20     Apr 15, 2018