Put/Call parity search

Discussion in 'Options' started by asdfghj7, Nov 30, 2008.

  1. Which website/search device will scan for the largest put/call parity skews. I'm looking for the largest skews for ATM and slightly out of the money puts and calls. For example, if GOOG is at 300 and its 6 month 290 put is going for 20pts and its 6 month 310 is going for 30pt. What search tool or website monitors this. Thanks
  2. dmo


    Simple risk-free arbitrages such as the one you seem to be describing are not available to retail traders, and haven't been for many years. Read the thread "GM skew" for more details. The level of competition has advanced brutally since the halcyon days when money was just lying around free for the taking. These days, if you want to bet less than a buck in order to make a buck, you'll have to figure out some obscure play that few people have noticed. It's not impossible, but requires time and commitment. And it probably won't last forever.

    Re-reading your question, you may be looking for something different from what you describe. Are you simply looking for the steepest implied volatility skews? If so, this has absolutely nothing to do with put/call parity.
  3. DMO's answer is rock solid. Great job.

  4. Thanks for the reply. I'm trying to find the most out of whack ATM put and call prices and 1 to 2 strikes out prices.
    For example, GOOG at 300 should have 1month expiring ATM puts and call for 20pt a piece. This would make 290 puts around 5 pts and 310 calls at 5 pts.
    I'm looking for GOOG when its ATM 300 calls are going for 30 and its ATM 300 puts are at 20. Or vice versa. Same with the OTM strikes that are close to ATM. Like 290puts at 12pts and 310calls at 7pts. Thanks again for the input.

    Your right. I'm probably incorrect. This is a Volatility skew question.
  5. dmo


    Okay then, you're asking two different questions.

    First question: If goog is at 300 and you want to buy 300 puts for 20 and sell 300 calls at 30, that is indeed a put/call parity arbitrage and as I said above, you won't find such a thing.

    Second question: If goog is at 300 and you want to find 290 puts at 12 pts and 310 calls at 7 pts., then you're simply looking for a steep volatility skew, which has absolutely nothing to do with put/call parity. You can find steep skews - maybe not quite THAT steep - but what do you plan to do with them once you find them?

    And by the way - keep in mind the effect of the lognormal distribution. If goog is at 300, and the 310 call is trading at the same IV as the 290 put, then they will not be trading at the same price. The call will be more expensive. The lognormal distribution takes into account that goog can only go down to zero, but can theoretically go up to infinity.
  6. I appreciate the help. I'm looking for a website that ranks at the end of the night which stocks that day had the largest skew in their implied volatility ration between calls and puts. Did I say this right? At the end of the day, I want to know which stocks are the most out of whack in IMP Vol ration wise between calls and puts. Thanks again for taking the time.
  7. OP , you can find what you are looking for (GOOG sample) , but its not an arb ( lol) , or due to skew or any other nonsense. It’s due to cost of carry
  8. dmo


    It's a worthwhile endeavor OP but I don't know what service does a good job of searching for steep skews. I can tell you a service that does a BAD job - ivolatility.com. They have something called their "advanced ranker" that purports to do exactly what you're looking for. Unfortunately, it doesn't. It is in fact the most amazingly worthless piece of crap I've come across. Apparently no one at ivolatility.com has actually bothered to check and see if it does anything remotely resembling what it's supposed to do. They have a free trial so you can check it out for yourself. Maybe they've improved it.