You stated earlier that the up/out CC was = a down/out short put and the board went nuts. That's the problem.
same strike call and put do not always trade at the same vol? that's the whole idea behind vol skew, that put-call IV isn't always at parity.. IWM, July 16th: $223 strike buy-write vs a $223 short put IWM closed @ $221.40 according to ToS $223 short call marks at $6.58, cost basis @ $214.82 $223 short put marks at $8.57, cost basis on assignment @ $214.25 the short put reduces cost basis per the amount of skew.. small difference, obviously, but it's there..
ah word.. i could see the confusion.. now that you understand what i'm actually saying, does it make a little more sense?
so, i understand that you're referring to the forward, not the ETF price, and in that case the numbers may well be different and i'd defer to you cuz i don't know a whoooole lot about forwards.. i'm just speaking on someone who wanted to either buy-write or short put the ETF today at close
@taowave @newwurldmn @Kevin Schmit as @destriero pointed out, i may have misrepresented what i was trying to say above, so to clarify: a 30D put will cost more than a 30D call if there's put skew.. you get paid more to take 30D of put risk than 30D of call risk.. and you'll see a small cost basis advantage shorting a put vs the equal strike buy-write if there's put skew.. the IWM examples i gave above are the best way i have to clearly demonstrate what i'm talking about with real numbers..
I am stating that you have to price the arb against the forward and not the share price. You'd be lulled into trading reversals if simply going by the share price. It's a lock. The payoff is equivalent if you're trading them at mid. Can they be a few pennies off? Sure, but they are fungible. Truly. Nobody with any sense is going to buy shares as a vehicle to write the call. There are many reasons not to do it (microstructure, comms, wash sale fvckery), but they aren't different. Most arbs have rho (opportunity risk in euro-conv) as a function of the edge, but that doesn't factor into singles.
Bro, if that were true then you would short the put, buy the call, and short shares. A reversal. You're long the synthetic at edge and short the natural. Your IWM numbers are wrong bc the synthetic says so.
not saying buying the shares to write the call is a good idea lol, just that was where the debate started iirc.. the whole original point was just to say that selling puts can be long-term profitable because of skewness.. the part about CC's was just to provide an example to contrast.. as to the forward, forgive me here, but again, forwards are one thing i'm just not well-versed on to be completely honest.. any resources you could point me in the direction of?
The synthetic long. Short put at n, long call at n. Use July. Think of it this way... if there weren't Russell futures and you had to buy D1 in RUT... how would you do so?