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With American-style options, the option can't be worth less than intrinsic value. That's because if the cost of carry of the option becomes too great you can always just exercise the option and realize its intrinsic value. But with European-style options yes, the cost-of-carry discount can...

Spin, I think what you're saying is that if IBM is at 100, then the 100 call will be more expensive than the 100 put due to cost of carry of the underlying. That's true, but it's due to "where the underlying is." That's because the pricing model uses the forward price of IBM as the underlying...

Let's go back and remember that an option is the sum of two things - time value and intrinsic value. Spin, the call at a given strike can be more expensive or the put can be more expensive depending on where the underlying is. But that's the result of changing intrinsic value, not time value...

To the contrary, put-call parity is based precisely on the fact that a put and a call at the same strike have the same vega, the same theta, and the same gamma. They are the same, except for their delta. That is the basis for the fact that a long call short underlying = a long put, long put...

Why is theta different for calls and puts? Actually, the call and the put at any given strike are identical except for their delta, which is the most superficial property of an option. That's why you can turn a call into a put or a put into a call in a flash simply by buying or selling the...

Unfortunately, you're not the only one who likes those puts apparently. The 2.50 put is offered at the insanely expensive price of 2.32. So if you buy it, you're risking 2.32 for the chance to make .18 maximum if the stock goes to zero. Not very good odds. So if you do it you'd better be...

In other words OP, what makes you think that volume was driven by call buyers? How do you know it wasn't a mad rush to sell those calls at any price? If you saw a big volume spike in AAPL stock, would you assume that it was AAPL buyers driving the price of AAPL up? Or would you actually...

When I was in T-bond options and carrying big positions against hundreds of futures, my variation margin could change drastically with a big move even if I was delta and gamma neutral. So if I was long for example 500 98 calls, short 500 98 puts, and short 500 futures, I was actually NOT...

There's really no right or wrong way to do this - everyone has their own ideas. If you're feeling energetic and really want to do a bang-up job on this, see how the VIX is calculated (CBOE website has details) and duplicate it. This is probably the most robust such calculation out there. If...

Traditionally, in a futures and options-on-futures account, you can have margin money held in T-bills. That's why pricing models used for options on futures differ from models used for options on equities. In equities, the risk-free interest rate or cost of carry input is used by your...

Easy to show with a simple example. IBM is about 120. Let's say you've decided to spend $10,000 on long-term insurance (puts) against IBM's bankruptcy. If you buy the ATM jan 2011 120 puts - which are offered at 16.20, you'll be able to buy 6 of them. If IBM goes to zero, you'll make...

LOL. Probably the most common words I heard spoken in the pit were "Hey, you're standing in my spot." Not much trading wisdom there but then again, not too many of those guys were geniuses. There's the ever-popular "You'll never go broke taking a profit" and "Cut your losses short, let...

If you think about it, it should become obvious that as IV goes up, so does theta. Think of it this way. Today the slightly-out-of-the-money IBM 120 calls closed at 2.45 bid, an IV of about 20%, with 11 days to expiration. If IBM doesn't move between now and expiration, these calls will...

Uh oh Mark, now you've done it. You've made Master at Work mad. There've been lots of discussions in the past in which MAW has insisted that delta can be > 1 if interest rates are negative. I'll bet that's what Martin is referring to. Honestly I can't remember the details but after first...

That all makes perfect sense. With rates this low, makes it hard to ignore the nearby limit of zero. BTW, when I was in T-bond options in the eighties, the skew was such that equidistant otm puts and calls traded at about the same price - as if they were implying a normal distribution. At...

Very interesting Martin. Are you saying that you would use a model assuming a normal distribution to trade options on a contract denominated in basis points, such as eurodollar futures?

Look at it this way. If silver is at $5 an ounce, which would you rather own, the $1 puts or the $9 calls? Obviously the $9 calls. If silver were just as likely to go down to -$5/oz as to go up to +$15/oz, then the two options should be priced the same. But if you assume that silver won't...

I think you're confusing supply/demand of options (which is what determines IV) with supply/demand of the underlying, which is what Schap is talking about.

I was talking about single month. I was just thinking about making a brief video to explain this, as a matter of fact.

Sorry Mark, didn't mean to come off as sarcastic. In my previous message I said that no demand = no IV. You seemed to take issue with that by saying that "in the real world, there is always a demand" and that "because of the system there is always demand for options." However, it seeems...