Put Call not in parity

Discussion in 'Options' started by misterkel, Jan 16, 2020.

  1. misterkel

    misterkel

    Why are SPY options not in parity? At a month out, Calls are about 50c more than puts at same strike.
    note: does not cross dividend payout.
     
  2. guru

    guru

    It would be nice if you provided specific screenshot or example, instead of asking everyone to start hunting for data and find examples that you didn't provide.
     
    rb7, Flynrider and athlonmank8 like this.
  3. minmike

    minmike

    Usually a dividend.
     
  4. Robert Morse

    Robert Morse Sponsor

    When I look at the implied vol of the puts and calls on the same strikes, I do not see any material difference.

    upload_2020-1-16_17-22-34.png
     
  5. So, should there always be rough put/call parity? If not, is that a sign to go one way or the other? Thanks!
     
  6. jamesbp

    jamesbp

  7. misterkel

    misterkel

  8. jamesbp

    jamesbp

    ?
     
  9. Robert Morse

    Robert Morse Sponsor

    Yes, or there is an arb. Put-call parity assumes you will hedge. There are cases where your costs do not match what market makers use so there is a benefit to you to use the options if you are not hedging. E.g. In a very hard to borrow stock, calls appear lower than puts, because the hedge for buying calls and selling puts is shorting a HTB stock. In fact, the implied interest rate is a negative rate. If you use the negative rate, and hedge, there is put-call parity. There are times when I want to get long that I prefer the long call vs long stock or selling an ITM put instead of long stock as I'm not hedging and the put is higher. If I hedge, the cost built-in makes sense and there is put-call parity and no arb.
     
    FSU likes this.
  10. jamesbp

    jamesbp

    No it doesn't ... we have discussed before ... Put-Call Parity only holds for European Exercise Style Options ... and not American Exercise Style Options with Dividends such as SPY ...

    From John Hull ( Options, Futures and Other Derivatives )

    pcp_Parity ( Hull ).png
     
    #10     Jan 17, 2020