Put/Call Premium Difference

Discussion in 'Options' started by arman555, Mar 10, 2024.

  1. BKR88

    BKR88

    Interest rates.

    Profit from trade = 6.18-4.51 = 1.67 ($167)
    Cost to carry: $45,457 x 5.25% = $2,386 / 365 = $6.54 x 23 (days) = $150

    ***Not much more profit than leaving the money in the bank at 5.25%.
    ***If you can avoid the interest rates then take advantage. :)
     
    #11     Mar 10, 2024
    ironchef likes this.
  2. arman555

    arman555

    :D I Like IT!!
     
    #12     Mar 10, 2024
    BKR88 likes this.
  3. Robert Morse

    Robert Morse Sponsor

    No, it is part of the cost. In that old screen shot, there were 23 days to expiration. The riskless rate at the time was about 5.35% and the strike was 450. 450*(23/365)*5% = $1.42. This assumes no dividend. You can buy a T-bill or buy this spread for less than 448.58 net of all costs.
     
    Last edited: Mar 10, 2024
    #13     Mar 10, 2024
  4. arman555

    arman555

    Like built into the premium or "holding cost" charged every day till expiry?
     
    #14     Mar 10, 2024
  5. Robert Morse

    Robert Morse Sponsor

    Opportunity cost. You can buy a risk fee T-bill or do this spread. This spread is not Risk free. There is pin risk and dividend risk.
     
    #15     Mar 10, 2024
  6. arman555

    arman555

    I am sorry but does future contract have carry cost or dividend cost?
     
    #16     Mar 10, 2024
  7. Robert Morse

    Robert Morse Sponsor

    His picture was of SPY.
     
    #17     Mar 10, 2024
  8. ajacobson

    ajacobson

    "I am sorry but does future contract have carry cost or dividend cost?"

    It absolutely does. The difference between spot and future includes net carry - assuming you can do the cash/carry trade.
     
    #18     Mar 10, 2024
  9. arman555

    arman555

    correct the "cost of carry" is built into the price of futures. But lets say that noone including me cant hold a position open for long. We can still do futures options and underlying future for far term and hold it for free (since future does not have any of those cost to carry.
     
    #19     Mar 10, 2024
  10. newwurldmn

    newwurldmn

    it’s not avoidable. Either it’s an explicit cost or an opportunity cost.
     
    #20     Mar 10, 2024