Sorry, I was too wage, let me be more specific what I meant: Pull-Call Party unarguably holds (I still would not call it carry) and it is reconciled through the following: The skewness in the distribution means that the stock price is more likely to end up below the strike than above (for ATM). However, the call has a higher potential payoff than the put, but lower probabilities of achieving it. Both effects cancel each other through risk-neutral pricing and therefore PC-Parity is not violated. With interest rates at zero (I come back to this in a second) the price of put and call would be identical. Given we have options at the money and no dividends (which is realistic for most options expiring within the next month (we talked about Nov and Dec options here), American early optionality has no value for both calls and puts (at least very low because we are currently atm and the prob of the put moving deep into the money is very low). So, dividends and American optionality does not play much of a role in this example. With rates<>zero the call is worth more.
I don't know a thing about skew distribution and option pricing so I have no clue what its relevance is. But what I do know is that if you look at an ATM put and call and you drop the interest rate to ZERO in a Black Scholes model, both options will have the same price. If you still disagree, please contact the CBOE and a host of authors to let them know that they're putting out bad info
Rates are not zero (so its worthless to discuss this and I never argued otherwise) and the underlying distribution is NOT log-normal. Show me a single stock option which currently trades ATM where the call and put price is identical.
Let's see if I have this right. Cashmoney69 starts this thread about a synthetic call. It's apparent that he's a relatively new to the concept of equivalence. Over the course of 3 days, several posters provide assistance explaining this. To keep things simple and to demonstrate the equivalence of the two positions, I provided a simplistic example where the ATM put and the call have the same price. Now most of us understand that there are other factors involved such as the carry cost, dividend, etc. You'll probably disagree with this as well but noobs tend to need simple examples and exlanations so that they can take little steps toward a deeper understanding - not quant answers they can't understand. And a funny thing happens with Cashmoney69 - it clicks and he gets it (equivalence). Now you stumble in and disagree with my statement that "In reality, calls are more expensive than puts because of the carry cost". You say it's because of skew distribution. In response, I demonstrate that if you drop the interest rate in a pricing model to ZERO, the premiums will be the same for the ATM put and call. Your response is: "Rates are not zero (so its worthless to discuss this and I never argued otherwise) and the underlying distribution is NOT log-normal. Show me a single stock option which currently trades ATM where the call and put price is identical." Now I'm no quant and I don't understand half of what I read here but I sure do recognize being run around in circles. Spare me the chase.
http://finance.groups.yahoo.com/group/OptionClub/message/8603 cashmoney ..the above link is the beginning of a RIMM option play back in Jan/Feb that was done as an example of how to play RIMM using options. If you read the thread the ex MM who trades options for his own account now does an excellent job in the play by play. What I did was print out each update to make it easier to read and follow along.
Thanks, I'll check it out. -- RIMM beats estimates "RIMM prelim $0.50 vs $0.49 Reuters consensus; revs $1.37 bln vs $1.36 bln Reuters consensus" briefing.com
Hey IV. I did the OTM double RC on RIMM. As usual, thanks again for bringing this strategy to attention deficit types like me