He didn't lose. You didn't understand his very accurate, informative response. I suggest you try reading what he wrote again and digest it this time. You are getting cute w words. Most likely saying the same thing. P/C parity always holds. I won't be jumping into your hypothetical as your perspective and facts are both flawed. The difference is always some extra risk being priced into p vs c. Early exercise plus cost of carry plus extreme market conditions can do some bizarre things to markets . Shocking, I know If you want to point me to a product, id be happy to explain what's happening. I would need to know the product, all bids/offers for every p/c as well as the underlying, to give you a high school level explanation.
How exactly are my facts flawed ... I have provided the simplest of examples to illustrate the point that p-c parity does not necessarily hold for American Options. Why not provide me with your explanation of why you think it does hold using the example provided ...
Lol, $10 div into a $100 stock? Why do you think the American call is worth $9.96 more? This is options 101. P/C parity always holds .
Spot Price $100 Dividend $10 $80 strike ... call price ... Euro Settlement $10.04 / American Settlement $20.00 ... put price ... Euro Settlement $0.04 / American Settlement $0.04 What is your p-c parity calculation for each Euro / Amer settlement ?
Why not just answer a simple question ... what is your p-c parity calculation for the example given ?
Bob Glad to see you are back in this discussion ... The point of using an option model was to provide a simple illustration the fact that put-call parity doesn't necessarily hold for ITM options with American Style exercise and dividends before expiry Are you now saying that ... the model clearly shows that put-call parity doesn't necessarily hold for ITM options with American Style exercise and dividends before expiry ... but in the real time markets put-call parity does hold If you don't like the CBOE/iVol option model I have used ... feel free to suggest another option model of your choice ... generate prices for the example given ... show put-call parity exists Shouldn't be too difficult with all the resources you have at Lightspeed Cheers James
James, The problem is that you are looking for an answer in the manner that you’re looking at the world, which is unrealistic. I have tried to explain to you that put call parity needs to be in place or someone would take it vantage of The miss-pricing. The markets are efficient. Your example is not relevant as is theoretical and not real.
Bob You are confusing non-arbitrage with put-call pariy. We agree that markets are efficiently priced and there are few ( if any ) arbitrage opportunities arising from option mis-pricing. Just put your math where your mouth is ... should be simple for a man with your resources to show that put-call parity holds for American Style options with dividends before expiry Pick any example you want ! Cheers James